Doctrine of Impossibility and Frustration

ABSTRACT

Impossibility of performance is a doctrine whereby one party can be released from a contract due to unforeseen circumstances that render performance. A contract becomes frustrated because of multiple reasons like the impossibility of an event or any issues which can lead to failure in the contract.

This paper focuses on the evolution of doctrine of impossibility and cause which leads to frustration of a contract. The aim of this research is to review the law of impossibility as it holds an important place in law providing a mechanism to deal with unpredictable and unfortunate circumstances which lead to contract being frustrated. With reference to relevant landmark judgments and illustrations, this paper sheds light on different ways when it is impossible to perform a pre-agreed contract due to certain impossibilities and describes many sorts of impossibilities in depth.

STATUTES REFERRED

• Indian Contract Act, 1872

LIST OF CASES

• Paradine v. Jane
• Taylor v. Caldwell
• V.L. Narasu v. P.S.V. Iyer
• Turner v. Goldsmith
• Robinson v. Davison
• Krell v. Henry
• Herne Bay Steam Boat Co. v. Hutton

INTRODUCTION

When parties enter into a contract, it is assumed that they will fulfill the contractual obligations which are binding on them but sometimes, circumstances are such that the fulfillment of those obligations becomes impractical or impossible. When these circumstances are impossible to fulfill and the contractual obligations are out of the control of the parties, the contract is said to be frustrated. Frustration of a contract covers all the possible situations under which it becomes impossible to execute the contract.

The term ‘Frustration’ has not been defined in the Indian Contract Act, 1872. Frustration has been defined in The Black’s Law Dictionary as “the doctrine that if a party’s principal purpose is substantially frustrated by unanticipated changed circumstances, that party’s duties are discharged and the contract is considered terminated”.[1]

Initially, this term was only confined to maritime contracts but afterward it was made applicable to all the contracts terminated by supervening events beyond the control of either parties. This doctrine helps to fill the void which was there before the enactment of this act. After the act, no one will be liable for any situation which is beyond his control and impractical. When a contract is being finalised to achieve a specific purpose but we can’t accomplish it, the contract can be said to be frustrated. There can be multiple reasons for the impossibility to fulfil the terms of the contract. A situation where both the parties of the contract were unaware of the incoming problems and no one predicted the same.

The doctrine of frustration originated from Roman contract law. It was first applied in England before it found its way to USA. This was applied in situations like when horse died before it was delivered. These situations were beyond the control of the parties of the contract and this doctrine protected innocent people from contractual obligations.[2]

DEVELOPMENT OF THE DOCTRINE IN ENGLISH LAW

Prior to 1863, there was a basic principle of contract law that a party to a contract was obligated to fulfil all of its obligations and could not use a defence of later impossibility to perform the obligation. In Paradine v. Jane, the landmark judgement ruling on the doctrine of absolute contracts was highlighted. When a lessee who was being sued for rent arrears claimed that he had been evicted and kept out of possession by an adversary from abroad, such an incident was out of his control and had prevented him from receiving the earnings from the land that he had anticipated using to pay the rent. But the courts in 19th century held this strategy proved to be overly stringent and potentially unfair.

The landmark ruling in Taylor v. Caldwell served as the foundation for the development of modern law. According to the facts, the defendants had consented to let the plaintiffs utilise a music hall for performances on four certain nights. After the contract was signed, the hall caught fire before the first night arrived. According to Blackburn J., the defendants were not responsible for damages since the idea of the sanctity of contracts only applied to promises that were positive and absolute and not subject to any express or inferred conditions.

FACTORS WHICH LEAD TO FRUSTRATION OF CONTRACT

Some examples of Frustration under the terms of Section 56 are physical damage to the subject matter, disappearance of the item, ensuing illegality in execution, delay, death or incapacity of a participant in a contract affecting personal success, and so on.

Any one of these elements may be present in the case.

Below is an analysis of a few of these factors:

1. Physical destruction of the subject matter

If any particular item is required to carry out the contract and it is being destroyed, the agreement would be null and void. For instance, in V.L. Narasu v. P.S.V. Iyer[3], a contract for a movie screening in a theatre became impossible to carry out when the rear wall of the hall collapsed due to heavy rain, killing three people. The licence of the theatre was revoked until the building was repaired to the chief engineer's satisfaction. The owner was under no duty to restructure.

Therefore, if the contract did not apply exclusively to those specific commodities, it could not be frustrated. The objects destroyed must be the subject matter of the contract. In Turner v. Goldsmith, the agency's agreement to deliver goods made by the defendant was upheld even after the factory was destroyed by fire because the agreement did not apply just to items made by the defendant at that particular plant.

2. Changes in the law that end in subsequent Illegality

A common cause under section 56 is a subsequent change in the legislation or in the legal situation that has an impact on a contract and prohibits the contract from being performed. Unless the contract says otherwise, "Law" includes international law. The change in the law must affect the contract's fundamental terms in order to discharge it, as opposed to just stopping performance under it. Such a modification in the law might be made by a Supreme Court order. Furthermore, the contract would fail if a governmental prohibition or ruling declared the performance to be invalid. Contracts that violated any of the Constitution's articles likewise came to an end with the implementation of the Indian Constitution.

The performance is illegal if the government enacts any legislation that significantly alters the law. But in one case, the Supreme Court ruled that even after the Nationalization Act went into effect and the major debtor was nationalised, the guarantor's obligation to pay on the principal debtor's default would continue to exist. "The Contract of Guarantee has no co-relation with that of the Nationalization Act nor is dependent thereon," the court ruled. "It is an independent contract and in all fairness needs to be honoured to complete the contractual obligation between the guarantor and the creditor."

3. The party’s death or incapacity to perform

If the performance of a contract is dependent on the continued existence of a particular entity, that entity will be excused from complying in the event that it is rendered incapable of doing so.

Therefore, the contract is terminated by the promisor's death or incapacity when the nature or contents of the agreement require that the promisor carry out his or her obligations personally. For instance, in the case of Robinson v. Davison, the plaintiff and defendant's wife, a skilled pianist, had promised to perform at a concert the plaintiff was hosting on a particular date. On the morning of the concert, she fell ill and was unable to go. When the concert had to be postponed, the plaintiff suffered financial loss. The breach of contract claim made by the plaintiff was rejected. If she was found to be unfit and the contract was broken, the court ruled that she was not only excused from participating but also was not free to do so.

Last but not least, a valid reason for the frustration of a contract is the death or disability of a party whose personal performance was expected by the contract. 101 For instance, the contract was deemed ineffective in an English case where the pianist's illness prevented him from playing in the concert.

4. Loss of Object

As mentioned earlier in section 56 of the Act, the word "impossible" has not been used in the sense of physical impossibility or literal impossibility. Physically carrying out the performance of a contract may still be possible, but if the contract is no longer necessary with regard to the object or goal and if there is a change in circumstances or an unfavourable incident that affects the parties, it must be determined that the contract is frustrated.

This is illustrated by the famous case in Krell v. Henry, where the court deemed the contract invalid because the intended function of the apartment (viewing the coronation parade) had been defeated. As a result, the thing or loss of the contract's intended outcome may also result from an anticipated event not occurring or a state of things not being present. A deal when the buyer's goal was to find a buyer for the products on his terms, was frustrated by the direction from the General Manager allowing the district officer to suggest the /the person(s) to whom the plaintiff was required to sell the items.

5. The non-occurrence of events

Even when a contract's fulfilment is very likely, its legality may still be called into question if an event that was widely expected to serve as the justification for the contract.

The idea for the Royal Naval Review was put out in Herne Bay Steam Boat Co. v. Hutton. A party of paying passengers was transported by the defendant in a two-person steamboat so they could observe the naval review and take a day cruise around the fleet. However, the review was cancelled, making it impossible for the defendant to operate the ship. Nevertheless, he was found responsible for paying the remaining balance of the hire, less the advantage received by the plaintiff in the ordinary course of business.

6. The Relationship of the Doctrine of Frustration and the Force Majeure Clause

Under the Indian Contract Act, the existence of a phrase in the contract that addresses subsequent occurrences does not, automatically preclude the doctrine's potential application. The scope of such a phrase has been examined by Indian courts in a number of cases to see whether it covers the relationship between the doctrine and the clause. It is necessary to talk about how the doctrine and a supervening event interact because of is the clause.

A force majeure provision is used in a contract to eliminate ambiguity when a supervening event occurs that is beyond the parties' control and for which they cannot be held liable. An illustration would be the license being terminated following the signing of the contract by a court order. Unless otherwise stated, this section does not give protection for self-induced impossibilities, such as a delay in applying for a license. The Supreme Court stated that the goal is to protect the performing party from any circumstance over which he has no control.

Section 56 and COVID-19

A pandemic may be subject to a force majeure provision in one of two situations:

• If the definition of a force majeure scenario in the contract specifically include pandemics. If pandemics were included in the list of force-majeure situations, it would be clear if the Covid-19 epidemic would be covered by a contract's force-majeure clause.
• If extraordinary events or circumstances that are beyond the proper control of the parties are covered by the force majeure clause. Such a clause may be utilised if it is understood that the factual circumstances caused by the pandemic are beyond the affected party's reasonable control.

An injured party may seek remedies under Section 56 for frustration/impossibility if COVID-19 is not characterised as a force majeure case or if the contract lacks an explicit force majeure provision. The law of frustration or force majeure cannot be imposed as a general norm, rather, the interpretation in each case will depend on the specific facts and circumstances. The nature of the contract's provision and the actual circumstances will determine whether force-majeure or the law of frustration will be successfully applied in the case of Covid-19.

CRITICAL ANALYSIS

From the above article, we can clearly make out that doctrine of frustration or imposssiblity is very important. In accordance with the doctrine of frustration, a party to a contract may be released from its obligations when events beyond its control occur. There is not set list which is followed under section 56. It is a statutory provision and will develop as the cases keep coming. It takes into account all the circumstances that prevent a contract from being fulfilled. According to the study, force majeure provisions help parties in avoiding or reducing their liabilities in the event of a supervening event beyond their control. The common law notion of frustration of contract, covered under section 56 of the Indian Contract Act, 1872, would take effect to protect the parties from any obligation resulting from the contract's non-performance if force majeure clauses are absent from the contract.

CONCLUSION

Section 56 of the Indian Contract Act provides legal support for the idea of frustration. The Indian courts interpret frustration to include situations that not only make it physically impossible to fulfil the contract's conditions, but also render them practically impracticable and undermine their intended purpose. The details of the factors and situations that the courts take into account when deciding whether section 56 is applicable or not have been covered in this Paper. Examples of circumstances that would trigger the provisions of section 56 include situations where the contract's subject matter is destroyed, performance has become illegal, the reason for entering the contract has been defeated, performance has been excessively delayed, or the performer has passed away or is otherwise unable to perform. The enforceability of rights and responsibilities under a contract is favoured by the restrictive interpretation of the doctrine and clauses like force majeure clauses, which is vital to maintain the confidence of parties to a contract.

REFERNCES

• An Overview of Section 56 of The Indian Contract Act https://www.legalserviceindia.com/legal/article-1929-an-overview-of-section-56-of-the-indian-contract-act.html
• Section 56 and COVID 19

https://blog.ipleaders.in/frustration-contract-section-56-indian-contract-act/#Section_56_and_COVID-19

• https://indiankanoon.org/
• https://www.scconline.com/
• CONTRACT ° O &SPECIFIC RELIEF J Avtar Singh Twelfth Edition
• CONTRACT I AND SPECFIC RELEIF ACT, Dr. Kailash Rai

[1] Bryan A Garner, Black’s Law Dictionary (9th edition, West Group 2009)

[3] AIR 1953 Mad 300, (1952) 2 MLJ 832