NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

LAW OF CONTRACT-II

SECOND SEMESTER

DOCTRINE OF FRUSTRATIONA AND ITS EFFECTS

Submitted To:

Assistant Prof. (Dr.) Neha Sharma

Submitted By:

Pranjal Sinha
A-2337
2021BALLB40
DECLARATION

I, Pranjal Sinha Roll Number 2021BALLB40 do hereby declare that the project titled “The
Doctrine of Frustration” is an outcome of my own independent research endeavour and has
been carried out under the guidance of Assistant Prof. Neha Sharma. I have clearly
recognised the literature that I used for the purposes of this project In the footnotes and
bibliography. The Project is not plagiarised, and every effort has been made to avoid
plagiarism. According to the Turnitin Report, the similarity index is percent. If my project is
determined to be plagiarised, the course teacher has complete authority to request that I alter
it. If I do not follow the teacher's directions, my project may be referred to the Committee
Against the Use of Unfair Means, and I will follow the Committee's judgement.

Date: 17 April 2021 Name: Pranjal Sinha

Enrolment No: A-2337 Roll No: 2021BALLB40

ACKNOWLEDGMENT

The unconditional support of many people made this project possible. I want to recognise and
extend cordial gratitude to Assistant Prof. Neha Sharma who in sharing his brilliant skills,
helped me to grow this project into a cohesive whole. I would also like to thank Gyan
Mandir, NLIU officials for helping me find the necessary research material for this report. I
would like to express my appreciation to the authority of the University. I would like to thank
my friends and family who have helped me accomplish this mission successfully.

Pranjal Sinha
TABLE OF CONTENT

DECLARATION.......................................................................................................................2

ACKNOWLEDGMENT............................................................................................................3

TABLE OF CONTENT.............................................................................................................4

INTRODUCTION......................................................................................................................5

STATEMENT OF PROBLEM..................................................................................................6

HYPOTHESIS...........................................................................................................................6

OBJECTIVES OF THE STUDY...............................................................................................6

METHOD OF STUDY..............................................................................................................6

LITERATURE REVIEW...........................................................................................................7

ORIGIN......................................................................................................................................8

MEANING...............................................................................................................................10

GROUNDS FOR THE DOCTRINE OF FRUSTRATION.....................................................12

CONDITIONS NECESSARY FOR APLLICATION OF SECTION 56................................13

INITIAL VS SUBSEQUENT IMPOSSIBILITY....................................................................14

LIMITS OF THE DOCTRINE................................................................................................14

EFFECTS OF FRUSTRATION..............................................................................................15

CONCLUSION........................................................................................................................16

BIBLIOGRAPHY....................................................................................................................17
INTRODUCTION

According to the Black Law Dictionary, frustration occurs when parties must have known
from the start that the contract could not be fulfilled unless and until some particular
condition continued to exist. Under the doctrine of "frustration, in the absence of a warranty
that such condition of things shall exist, the contract is to be construed as subject to implied
condition that parties shall be excused in case, prior to breach, p The doctrine of frustration
refers to the inability of a party to perform a contract. It refers to a situation in which a
contract cannot be performed due to an unforeseen condition beyond the parties' control. The
contract is frustrated, which means that it becomes difficult, impossible, or even illegal to
perform. Contract frustration can occur as a result of unexpected, improbable events or
conditions beyond the parties' control.

The contract is automatically frustrated– When a frustrating occurrence occurs, the contract is
typically automatically ended. Because the parties' responsibilities are immediately
terminated once the contract is frustrated, the parties are not obligated to cancel the contract.

Further obligations are discharged- When a contract is deemed to be frustrated, both parties
are relieved of their obligations.

Legal rights or liabilities that have already accrued before to the irritating occurrence are
unaffected.

The Indian Contract Act of 1872 does not define contract frustration. Section 56 of the Act,
on the other hand, codifies the theory of frustration. According to section 56, a contract to
execute an impossible act is void in and of itself. It further states that if a contract to do an act
becomes impossible or unlawful owing to an occurrence that the promisor cannot prevent, the
entire contract is nullified.
STATEMENT OF PROBLEM

When it is asserted that a change in circumstances or conditions occurring after the contract's
inception but before its consummation rendered its fulfilment physically and monetarily
impossible, the doctrine of frustration applies.

HYPOTHESIS

The doctrine is unconcerned with the initial impossibility that could render a contract void
from the start.

OBJECTIVES OF THE STUDY

 The main objective of the study is to discuss and analyse the doctrine of frustration
and its effects.
 To study the conditions required to prove frustration of contract.

 To examine the grounds of doctrine of frustration.

 To analytical analyse the limits of the doctrine of frustration and its effects.

METHOD OF STUDY

In order to complete this assignment, the researcher used a purely doctrinal research
methodology.
LITERATURE REVIEW

Book-

1. DOCTRINE OF FRUSTRATION AND LEASES -V. Ramaseshan

According to the author the doctrine of frustration occupies a unique place in the law
of contract. This doctrine is intended to relieve parties from their mutual obligations
under a contract due to the occurrence of certain events after the contract's formation,
and that holding them to their original contract would be tantamount to forcing them
to enter into a new contract that they would not want to enter into. However, the
terminology provided in section 56 of the Indian Contract Act 1872 has not rendered
the task of the Indian courts any less onerous. The author believes that although the
doctrine has been made in relation to obligation arising out of contracts it can well be
extended to other types of relationships.
2. Journal of the Indian Law Institute (SPECIAL ISSUE: 1972 (1972), pp. 132-177)- G.
M. Sen
The doctrine of frustration is a subset of the doctrine of contract discharge caused by
an impossibility of performance that arises after the contract is formed. (Joseph
Constantine Steamship Line, Ltd. v. Imperial Smelting Corporation (1942)
A.C1.Although numerous arguments have been advanced by judges and jurists in
England regarding the legal basis for the theory of frustration," the primary concept
upon which the doctrine is founded is that of contract performance impossible. The
author believes that in terms of Indian law, it is impossible to imagine a situation in
which a statement as apparent as the one stated in paragraph (1) of section 56 would
be contested. The position is thus the same in common law and under the Act,
however in the former it had to be determined by applying either a rule relating to
consideration or one relating to the party’s intention. He has also stated that he is not
aware of any instances in which the application of section (56), in its current form,
has resulted in any difficulty or complexity of interpretation and is in favour of
leaving the section intact.

1
Joseph Constantine Steamship Line, Ltd. v. Imperial Smelting Corporation, [1941] 2 ALL E.R 165:
ORIGIN

Contract frustration is a notion that has its origins in Roman law. Its applicability is evident in
Roman contract law, where parties were released when the object of the deal was destroyed
or the contract's objective became unreachable.

The philosophy of frustration is founded on the principal Lex non cogit ad Impossibilia. 'The
Impossible is not compelled by law,' it says. A basic assumption in a two-party contract is
that the contract's performance is dependent on the continued existence of a specific person or
thing, and that any later impossibility (due to the person's or item's death) will excuse the
contract's fulfilment. A condition like this is implied in all contracts.

The origin of contract frustration is intimately linked to the English Rule: In circumstances of
contract breach, the defendant's subsequent impossibility of performance cannot be a
sufficient defence. This ruling was established in the case of Paradine vs Jane2.

Paradine sued Jane for rent due. The defendant contended that he was unable to profit from
the property because the German Prince had invaded the area (Occupied the property). He
intended to pay the rent using the earnings he would have received if the property had been
used. The defence was found to be ineffective since the contract's obligation was absolute and
without exception. Despite the defendant's fair and convincing argument that he couldn't do
anything about the issue, the Judge decided that the contract's responsibility should be
honoured in all circumstances. Despite being unique to English Common Law, this rule was
upheld until 1863. Courts refused to recognise any general concept that a party may be
relieved from culpability in the absence of an express condition releasing him from liability
in the particular occurrence that occurred.

In the case of Taylor v. Caldwell3 :

Plaintiff and Defendant entered into a contract in which Defendant agreed to provide Plaintiff
four days usage of The Surrey Gardens and Music Hall. A fire destroyed the music hall
shortly after the contract was signed, but before the first contract was signed. Neither party
2
Paradine vs Jane, [1647] EWHC KB J5
3
Taylor v. Caldwell, 123 E.R. 309
was at fault for the devastation. Yet it was significant enough to cancel the concerts. The
defendants were not responsible in damages, according to the Queen's Bench, because the
law of contract sanctity only applied to a guarantee that was definite and absolute, and not
subject to any condition expressed or inferred. The Judge contended that the contract's
structure required the parties to understand from the start that its fulfilment was contingent on
the continued presence of a specific person or thing, so introducing the concept of frustration
into English law.

The doctrine of frustration is not limited to tangible things. Furthermore, the case of Krell v
Henry4 demonstrates that the doctrine is not limited to physical impossibilities. It also covers
situations where the contract's performance is realistically tangible but the goal for which the
parties drafted the agreement has not materialized.

In this case, the defendant agreed to rent a flat to the plaintiff for the dates of June 26 and 27,
which were known to be the days when the coronation procession would pass through the
neighbourhood. The defendant paid a portion of the rent in advance.

The defendant, however, refused to pay the amount due to the parade being cancelled due to
the King's illness. The real objective of the contract, as both sides acknowledged, was to get a
front-row seat to the coronation parade. The contract was founded on the procession taking
place; however the goal of the pact was thwarted by the lack of a coronation. As a result, the
plaintiff was barred from recovering the remaining rent.

4
Krell v Henry, [1903] 2 KB 740
MEANING

A contract is an agreement or set of duties that the contracting parties must perform. An
unforeseen condition may develop after the contract has been constructed, rendering the
contract's fulfilment impossible. The contract's object no longer exists. This change in
circumstances is unrelated to the parties, and it alters the nature of duties in ways that the
parties did not anticipate.

INDIAN CONTRACT ACT 1872- SECTION 56

A contract to perform an act that is inherently impossible is null and invalid. When a contract
to do an act becomes impossible or unlawful after it is made as a result of an unforeseen
event, the contract becomes void. When one person makes a promise to do something he
knows or could have known with reasonable effort but did not, the promisor must
compensate the promisor for any loss caused by the pledge.

MAJOR CASES

 Satyabrata Ghose v Mugneeram Bangur and Company & Anr5

The defendant corporation was involved in a project to turn a neighbourhood into a
housing colony. The complainant was given a land after paying a deposit. The
company promised to build the necessary roads and drains to develop the land and
make it suitable for construction and residential usage. When the development work
was finished, the buyer was needed to pay the remaining balance to complete the
conveyance. During WWII, the government took up a large chunk of the land for
military purposes. The corporation moved to annul the contract due to a supervening
impossibility.

5
Satyabrata Ghose v Mugneeram Bangur and Company & Anr, 1954 Vol.5 SCR 310
 The court dismissed the defendant's lawsuit, holding that the term "impossibility" in
Section 56(Agreement to Do Impossible Act) does not mean "physically impossible."
It refers to a shift in circumstances that entirely upends the basis on which the parties'
agreement was built. It should be remembered that the requisition instructions were
just temporary. There was no mention of a deadline for the project to be finished. Due
to the lack of any contractual deadlines, and because it was inevitable for some
constraints to be in place during the war, the project encountered difficulties and was
delayed. The requisition order's delay had no effect on the main goal and had no
bearing on the adventure's roots.

 Sushila Devi vs Hari Singh6

Section 56 of the Indian Contract Act, 1872 does not cover leases, and any leases
taken under the Indian Contract Act, 1872 will be incorrect. In Raja Dhruv Dev
Chand v. Harmohinder Singh7, the Supreme Court noted that there was no lease and
simply a leasing agreement in this case. And, based on the circumstances, the
appellants are unable to take ownership of the properties due to the current conditions.
By citing Satyabrata Ghose v. Mugneeram Bangur & Co. & Anr., the judge further
stated that the physical impossibility would fall under section 56 of the Indian
Contract Act, 1872. As a result, the appeal was dismissed, and the parties were
ordered to incur their own costs.

6
Sushila Devi vs Hari Singh, (1971) 2 SCC 288
7
Raja Dhruv Dev Chand v. Harmohinder Singh, (1968) 3 SCR 339
GROUNDS FOR THE DOCTRINE OF FRUSTRATION

1. Subject-matter destruction: When the contract's distinctive subject-matter is

destroyed, the concept of impossibility is relevant. For instance, "Taylor vs.
Caldwell."
2. Change in circumstances: A contract will be frustrated if "certain circumstances arise
that render the contract's execution in the way envisaged impossible. “In Parmeshwar
Das Mehra v Ram Chand Om Prakash, The principle was explained by Justice Kapur
of the Punjab High Court, who stated that when an entirely unexpected event occurs,
the critical question to consider is whether the event has influenced the contracting
parties' responsibility in such a way that the contract becomes virtually impossible, if
not perilous or hazardous. If this is the case and the occurrence was not caused by
either party's negligence, the courts will not enforce the contract.
3. The non-occurrence of a specified event: There are times when contract performance
is completely feasible, but only if a stated event occurs that has no influence on the
contract's primary objective. It renders the contract's objective unachievable.
Example, Krell vs Henry.
4. Death or incapacity of party: A party to a contract is freed from the duty if the deal is
reliant on the survival of a specific individual, and that person dies. The core of these
types of instances is that they require an individual to apply his or her unique
expertise, in this case the promisor's death or incapacity, which puts the contract to a
stop.
5. Government, Administrative, or Legislative Intervention: A contract will be dissolved
if a legislative or administrative action strikes the contract's objective or purpose,
thereby affecting the contract's basic nature. Example, if a land vendor could not
finish the sale-deed because he was no longer the owner as a result of a newly enacted
statute, the contract was deemed impossible to perform.
6. Intervention in War: Courts have frequently faced tough decisions in the wake of wars
or situations resembling wars. If there are multiple ways to complete a contract and
the war cuts off only one of them, the party is still obligated to perform the contract in
the other way, regardless of how inconvenient or expensive it is. The Privy Council's
 ruling in Twentsche Overseas Trading Co. Ltd. vs Uganda Sugar Factory Ltd 8.
suggests this.
The principle of frustration cannot be relied upon if the intervention of a war is due to
a delay induced by a party's negligence, according to an Indian interpretation in
Gambhirmar vs Indian Bank Ltd9.
Where performance is truly impeded, the concept of frustration will not be applied;
nonetheless, there is a strong reluctance to hold contracts frustrated where
performance has simply become more difficult or less advantageous for one party.

Application to leases: The "English Law" on lease applications is unclear. In Raja

Dhruv Dev Chand v Raja Harmohinder Singh, the Supreme Court of India stated that
"authorities in the courts in India have traditionally taken the position that Section 56
of the Contract Act is not applicable when the parties' rights and obligations arise
from a transfer of property under a lease." This was one of the cases that arose from
the country's split into India and Pakistan. The lease in question was for a one-year
period on agricultural land. The lessee was awarded possession after the rent was
paid. Before the land could be planted, partition occurred, leaving the land in Pakistan
and the parties migrating to India. The purpose of the action was to recoup the rent
that had been paid. It didn't work since the judges pointed out that completed transfers
aren't covered by Section 56.

8
Twentsche Overseas Trading Co. Ltd. vs Uganda Sugar Factory Ltd, 1945-1 Mad LJ 417
9
Gambhirmar vs Indian Bank Ltd, AIR 1963 Cal 163
CONDITIONS NECESSARY FOR APLLICATION OF

SECTION 56

 There is existence of a valid and ongoing contract between the parties. It is the first
and most important condition required for the application of section 56.
 Part of the contract is yet to be performed by one of the parties.
 After the contract has been agreed upon by the parties, performance of the goal
becomes impossible to perform and therefore contract stands void.

INITIAL VS SUBSEQUENT IMPOSSIBILITY

 Initial impossibility: Any contract's purpose is for the parties to fulfil their individual
commitments, and if that is impossible, the parties will not enter it. The term "initial
impossibility" refers to contracts that were impossible to fulfil from the outset. For
instance, if a married man promises to marry again despite his inability to do so, he
owes the other party compensation.
 Subsequent impossibility: It deals with situations where the contract was possible to
perform when it was entered but has since become impossible or unlawful due to
some event, and so the party is released from performing it. For example, suppose A
buys tickets from B to watch a cricket match and pays half the price in advance. If the
match is cancelled, A will be unable to recoup from B because the termination was
beyond A's control.
LIMITS OF THE DOCTRINE

The standard is that the parties will be held liable for any breach of the contract's obligations,
with the exception of parties being dismissed due to exasperation. Following this line of
reasoning, the courts have stated that a change in circumstances must be "sufficient as to
upend the contract's goal. In every transaction, some hindrance or deviation occurs, and it
cannot be presumed that any agreement has been established on the implied understanding
that this will not occur to any extent.

Davis Contractors Ltd v Fareham UDC10

Facts: Davis Contractors and Fareham UDC agreed to construct 78 residences in eight
months. Since the plaintiff was short on materials and labour, the project took 22 months to
complete.

The plaintiff claimed that the delay had raised costs and that the delay was caused by events
beyond anyone's control. The court was asked to declare the contract null and void, claiming
quantum meruit for the value of the job completed. The verdict was in the defendant's favour.
Without a doubt, the contract has become more onerous, yet this cannot be read as contract
frustration. This is the difference, according to Lord Reid, between the contract being more
onerous and frustrating.

EFFECTS OF FRUSTRATION

Frustration should not be self-induced: Frustration should not be caused by the fault or
actions of any of the parties. In one case, which illustrates this argument. The exporter had an
export licence to supply 3000 tonnes of sugar beet pulp pellets. They had requested an
increase in their quota from the government, but it had been denied. After selling 1500 tonnes
to the first bidder, there is an option to sell another 1500 tonnes. They also made a deal with

10
Davis Contractors Ltd v Fareham UDC, [1956] AC 696
another buyer to get 1500 tonnes of sugar from them. This was definitely outside the scope of
their licence. To get out of this, the exporters divided the 1500 tonnes evenly between the two
customers. One of the buyers filed a lawsuit against the exporters for breach of contract. The
suppliers pleaded frustration.

Though the court referred to the idea contained in the American Uniform Commercial Code
that in such a circumstance, the seller may allocate supply in any judicious and reasonable
manner, the court found no foundation for applying the principle to English law.

CONCLUSION

As a result, the following is a summary: When the law recognises that, without the fault of
either party, a contractual obligation has become incapable of being performed because the
circumstances in which the performance is required would cause it to become something
radically different from what the contract originally intended, it is referred to as "frustration."

If the existence of a specific thing is required for the performance of a contract promise,
either by contract terms or in the parties' contemplation, the duty to perform the promise is
discharged if the thing is no longer in existence at the time of performance, according to
Frustration of Contract. The Frustration of Purpose rule excuses a promisor in specified cases
when the contract's purposes have been defeated by circumstances that develop after the
agreement's establishment, and the performance is excused even though the actual
performance is not impeded under this rule.

As a result, frustration can be defined as the unanticipated and unexpected termination of a

contract due to the occurrence of certain accidents that render its fulfilment impossible. In
other terms, frustration refers to the termination of a contract due to the unanticipated
difficulty of performing a contractual commitment. As a result, the term "frustration" refers
to an unanticipated contract termination due to the inability to fulfil a contractual
commitment. The same opinion is shared by both English and Indian courts. Impossibility,
Supervening Impossibility, Discharge by Subsequent Impossibility, and Discharge by
Operation of Law have all been studied by English and Indian writers under the heading of
Frustration Doctrine.
Therefore, from the discussion of the Doctrine of Frustration it is evident that section 56 deals
with cases of subsequent impossibility as well as cases of initial impossibility.

BIBLIOGRAPHY

1. Websites
 https://www.legalserviceindia.com/legal/article-2528-doctrine-of-
frustration.html
 https://blog.ipleaders.in/doctrine-of-frustration/
 https://blog.ipleaders.in/doctrine-of-frustration-2/
 https://enterslice.com/learning/doctrine-of-frustration-under-the-indian-
contract-act-1872/#:~:text=The%20doctrine%20of%20frustration
%20basically,complicated%2C%20impossible%20or%20even%20illegal.
 Jstor.org
 SCC Online
2. Indian Contract Act, 1872
3. Doctrine Of Frustration and Leases -V. Ramaseshan
4. Journal of the Indian Law Institute (SPECIAL ISSUE: 1972 (1972), pp. 132-177)- G.
M. Sen