What is Doctrine of frustration of contract with illustrations?

 The doctrine of frustration means that when, after a valid contract is made, a supervening event occurs without fault of either party, and that event makes performance impossible, unlawful, or fundamentally different from what the parties originally contemplated, the contract becomes void under Section 56 of the Indian Contract Act, 1872.

Meaning

Section 56 embodies the rule that the law does not compel a person to do what has become impossible. Frustration is therefore a mode of discharge of contract by operation of law, not by choice of the parties.

Print Page

Important Notes on contract law

 

1) Twelve Golden Rules governing ratification of act of agent by principal.

https://www.lawweb.in/2020/07/ratification-by-principal-of-act-of.html

2) Difference between Liquidated and unliquidated damages

https://www.lawweb.in/2020/07/difference-between-liquidated-and.html

3) What is basic concept of doctrine of frustration with reference to Indian contract act? 

https://www.lawweb.in/2024/06/what-is-basic-concept-of-doctrine-of.html

4) What are the basic concept of indemnity and guarantee with reference to Indian Contract Act?

https://www.lawweb.in/2024/06/what-are-basic-concept-of-indemnity-and.html

Print Page

What is basic concept of doctrine of frustration with reference to Indian contract act?

 

The Doctrine of Frustration is a legal concept in contract law that allows for the discharge of contractual obligations when unforeseen events render performance impossible. It is codified in Section 56 of the Indian Contract Act, 1872, which states that agreements to do impossible acts are void, and when a contract becomes impossible or unlawful due to uncontrollable events, the contract is void. The Doctrine of Frustration is an exception to the general rule that obliges parties to honor their contractual promises, providing a means to harmonize the integrity of contracts with equitable considerations. The doctrine applies when the performance of a contract has been frustrated, and the performance of it has become impossible to perform due to any unavoidable reason or condition. The doctrine makes any contract or agreement which is incapable of being performed or becomes so after it is made, void and hence, discharges the parties from their liabilities mentioned in the contract. The Doctrine of Frustration has evolved over time and has been incorporated into Indian law through Section 56 of the Indian Contract Act, 1872.

Important judgments on doctrine of frustration of contract :

Click here

Print Page

Questions and Answers on law (Part 67)

Q 1:- What is basic concept of Doctrine of Transferred malice?

Ans:- The doctrine of transferred malice, also known as transferred intent or transferred mens rea, is a legal concept that applies in situations where the intended harm falls on an unintended victim. In essence, the Accused's criminal intent "transfers" to the unintended victim, holding them liable for the harm caused. Here's a breakdown:

Key Points:

Print Page

Whether doctrine of frustration of contract is applicable to leases of immovable property?

 We are unable to agree with counsel for the appellant in the present case that the relation between the appellant and the respondents rested in a contract. It is true that Court of Wards had accepted the tender of the appellant and had granted him a lease on agreed terms of lands of Dada Siba Estate. But the rights of the parties did not after the lease was granted rest in contract. By S. 4 of the Transfer of Property Act the chapters and sections of the Transfer of Property Act which relate to contracts are to be taken as part of the Indian Contract Act, 1872. That section however does not enact and cannot be read as enacting that the provisions of the Contract Act are to be read into the Transfer of Property Act. There is a clear distinction between a completed conveyance and an executory contract, and events which discharge a contract do not invalidate a concluded transfer.

10. By its express terms s. 56 of the Contract Act does not apply to cases in which there is a completed transfer. The second paragraph of s. 56 which is the only paragraph material to cases of this nature has a limited application to covenants under a lease. A covenant under a lease to do an act which after the contract is made becomes impossible or by reason of some event which the promisor could not prevent unlawful, becomes void when the act becomes impossible or unlawful. But on that account the transfer of property resulting from the lease granted by the lessor to the lessee is not declared void.

11. By the agreement of lease the appellant undertook to pay rent for the year 1947-48 and the Court of Wards agreed to give on lease the land in its management. It is not claimed that the agreement of lease was void or voidable. Nor is it the case of the appellant that the lease was determined in any manner known to law. The appellant obtained possession of the land. He was unable to continue in effective possession on account of circumstances beyond his control. Granting that the parties at the date of the lease did not contemplate that there may be riots in the area rendering it unsafe for the appellant to carry on cultivation, or that the crops grown by him may be looted, there was no covenant in the lease that in the event of the appellant being unable to remain in possession and to cultivate the land and to collect the crops, he will not be liable to pay the rent. Inability of the appellant to cultivate the land or to collect the crops because of widespread riots cannot in the events that transpired clothe him with the right to claim refund of the rent paid.

12. Authorities in the Courts in India have generally taken the view that s. 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.

13. In Tarabai Jivanlal Parekh v. Lala Padamchand MANU/MH/0046/1950 : AIR1950Bom89 it was held that monthly tenants of residential premises from whose occupation the premises were requisitioned continued to remain the monthly tenants of the landlord as before and that by reason of the requisition there was no eviction by title paramount or a frustration of adventure. The Court in that case observed that the doctrine of frustration did not apply where there is a lease whether the term is one for a fixed period or one which can be terminated by notice to quit, as the estate vested in the lessee by a lease is not extinguished by the order of requisition which is of a temporary nature.

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 407 of 1965

Decided On: 01.03.1968

Dhruv Dev Chand Vs. Harmohinder Singh and Ors.

Hon'ble Judges/Coram:

G.K. Mitter, J.C. Shah and Vaidynathier Ramaswami, JJ.

Citation:  (1968) 3 SCR 339 

J.C. Shah, J.

Print Page

Latest Supreme court judgment on interpretation S 32 and S 56 of Contract Act if there is frustration of contract

 In the present case, parties have agreed, and in Clause 14 of the Agreement, it was contemplated that during the contract if there is any prohibition of the export or any other executive or legislative Act by or on behalf the Government of the Country of origin, the unfulfilled part of the contract shall be cancelled. Because of the refusal by the Government, it was not permissible to the NAFED to make a supply to the Alimenta S.A. Hence; the unfulfilled part was required to be cancelled. Thus, NAFED was justified in not making the supply as it would have violated the Export Control Order, and it was not permissible to carry forward the quantity of the previous year to the next year because of the Export Control Order without permission of the Government.

44. It is apparent that the contract came to an end in terms of Clause 14 of the Agreement. The contract became void in view of the provisions contained in Section 32 of the Indian Contract Act, 1881 (for short, "Contract Act"). The stipulation in Clause 14 releases both parties from the performance of the contract.

45. Section 32 of the Contract Act provides for enforcement of contingent contracts. Section 32, along with illustrations, is reproduced hereunder:

32. Enforcement of contracts contingent on an event happening.--Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened.

If the event becomes impossible, such contracts become void.

Illustrations

(a) A makes a contract with B to buy B's horse if A survives C. This contract cannot be enforced by law unless and until C dies in A's lifetime.

(b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse."

(c) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.

46. Section 56 of the Contract Act deals with the agreement to do an impossible act or to do acts afterward become impossible or unlawful. It also provides for liability of the promisor to do something which he knew or might have known with reasonable diligence an act which is impossible or unlawful; as such, the promisor must make compensation for the non-performance of the promise.

47. Section 32 of the Contract Act applies in case the agreement itself provides for contingencies upon happening of which contract cannot be carried out and provide the consequences. To this case, provisions of Section 32 of the Contract Act is attracted and not Section 56. In case an act becomes impossible at a future date, and that exigency is not provided in the agreement on the happening of which exigency, impossible or unlawful, the promisor had no control which he could not have prevented, the contract becomes void as provided in Section 56. However, Section 56 also provides liability for a cause where the promisor has agreed to do something which he knew or with reasonable diligence might have known and which the promisee did not know to be impossible or unlawful. Such a promisor must make compensation to such promise and is liable to pay damages. The latter part of Section 56 is applicable when promisee did not know the act to be impossible or unlawful and that it was not known to the promisor; the action was impossible or unlawful or with reasonable diligence might have known.

48. In the present case, because of the clear stipulation in Clause 14 of the Agreement, it is apparent that the parties have agreed for a contingent contract. They knew very well that the Government's executive, or legislative actions might come in the way as provided in Clause 14 of the Agreement. Thus, in this case, Section 32 of the Contract Act is attracted and not the provisions of Section 56. It was an agreement to do an act impossible in itself without permission, and that is declared to be void by Section 32. The contract was capable of being performed in case the Government gave the requisite authorization. It is not an event that was not in contemplation at the time of entering into the agreement. Government permission was necessary. Section 56 is not attracted as the promisor and promisee both knew the reason in advance as in agreement such a contingency was provided itself in case of Government's executive order comes in the way, for cancellation of the contract. Thus, the contract became void on the happening of the contingency, as provided in Section 32 of the Contract Act.

49. This Court in Satyabrata Ghose v. Mugneeram Bangur & Co. MANU/SC/0131/1953 : AIR 1954 SC 44, considered the applicability of Sections 32 and 56 while considering the doctrine of frustration of contract. Impossibility and frustration are used as interchangeable expressions. The principle of frustration is an aspect of the discharge of a contract. In India, the only doctrine the courts have to go by is that of intervening impossibility or illegality as laid down in Section 56, and the English decisions in this regard may have persuasive value but are not binding. 

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 667 of 2012

Decided On: 22.04.2020

 National Agricultural Co-Operative Marketing Federation of India

Vs. Alimenta S.A.

Hon'ble Judges/Coram:

Arun Mishra, M.R. Shah and B.R. Gavai, JJ.

Print Page

Whether tenancy rights will be extinguished if tenanted building is destroyed?

The tenancy cannot be said to have been determined by attracting applicability of the doctrine of frustration consequent upon demolishing of the tenancy premises. Doctrine of frustration belongs to the realm of Law of Contracts; it does not apply to a transaction where not only a privity of contract but a privity of estate has also been created inasmuch as lease is the transfer of an interest in immovable property within the meaning of Section 5 of the Transfer of Property Act (wherein the phrase 'the transfer of property' has been defined), read with Section 105, which defines a lease of immovable property as a transfer of a right to enjoy such property. (See observations of this Court in this regard in Raja Dhruv Dev Chand Vs. Raja Harmohinder Singh & Anr., MANU/SC/0179/1968 : 1968 (3) SCR 339). It is neither the case of the appellants nor of the respondents No.2 and 3 that the subject matter of lease was the building and the building alone, excluding land whereon the building forming subject matter of tenancy stood at the time of creation of lease.

20. In Woodfall's Laws of Landlord and Tenant (28th Edition, Vol.1) the relevant law is so stated:

Where the lessee covenants to pay rent at stated period (without any exception in case of fire), he is bound to pay it, though the house be burnt down; for the land remains, and he might have provided to the contrary by express stipulation, if both parties had so intended. And this rule applies, although the lessee's covenant to repair contain an exception in case of fire. Similarly, an action for use and occupation still lies in respect of the whole period of the tenancy notwithstanding the destruction of the premises by fire." (Para 1-0778)

In a lease of land with buildings upon it the destruction of even the entirety of the buildings does not affect the continuance of the lease or of the lessee's liabilities under it, unless so provided by express contract." (Para 1-2055)

A demise must have a subject-matter, either corporeal or incorporeal. If the subject-matter is destroyed entirely, it is submitted that the lease comes automatically to an end, for there is no longer any demise. The mere destruction of a building on land is not total destruction of the subject-matter of a lease of the land and building, so the demise continues. But if by some convulsion of nature the very site ceases to exist, by being swallowed up altogether or buried in the depths of the sea, it seems clear that any lease of the property must come to an end." (Para 1-2056)

21. A lease of a house or of a shop is a lease not only of the superstructure but also of its site. It would be different if not only the site but also the land beneath ceases to exist by an act of nature. In the present case the appellants who are the successors of the tenancy right have demolished the superstructure but the land beneath continues to exist. The entire tenancy premises have not been lost. Moreover, the appellants cannot be permitted to take shelter behind their own act prejudicial to the interest of the respondent No.1 under whom the respondents no.2 and 3 were holding as tenants and then inducted the appellants.

22. In D.G. Gouse & Co. (Agents) Pvt. Ltd. Vs. State of Kerala & Anr., MANU/SC/0330/1980 : (1980) 2 SCC 410, while dealing with Entry 49 of List II of the Seventh Schedule of the Constitution, making a reference to Oxford English Dictionary, this Court has held that the site of the building is a component part of the building and therefore inheres in the concept or ordinary meaning of the expression 'building'. Referring to Corporation of the City of Victoria Vs. Bishop of Vancouver Island, AIR 1921 PC 240, it was held that the word 'building' must receive its natural and ordinary meaning as 'including the fabric of which it is composed, the ground upon which its walls stand and the ground embraced within those walls".

23. We are, therefore, of the opinion that in the event of the tenancy having been created in respect of a building standing on the land, it is the building and the land which are both components of subject matter of demise and the destruction of the building alone does not determine the tenancy when the land which was site of the building continues to exist; more so when the building has been destroyed or demolished neither by the landlord nor by an act of nature but solely by the act of the tenant or the person claiming under him. 

IN THE HIGH COURT OF BOMBAY

Civil Revision Application No. 115 of 2010

Decided On: 10.01.2012

 Pius Bonaventure Fernandes Vs. Manu Narang

Hon'ble Judges/Coram:

G.S. Godbole, J.

Citation: 2012(2) Bom CR,2012(2) ALLMR 112,2012(2) MHLJ68

Print Page

Whether doctrine of frustration is applicable to contracts for sale of land in India?

It is true that in England the judicial opinion generally expressed is, that the doctrine of frustration does not operate in the case of contracts for sale of land. The reason is that under English law such a contract creates, an interest in the property, and the rule of frustration can only put an end to purely contractual obligations; but it cannot destroy an estate in land which has already accrued in favour of a contracting party. According to the Indian law, which is embodied in Section 54 of the Transfer of Property Act, a contract for sale of land does not of itself create any interest in the property which is the subject-matter of the contract. The obligations of the parties to a contract for sale of land are, therefore, the same as in other ordinary contracts and consequently there is no conceivable reason why the doctrine of frustration should not be applicable to contracts for sale of land in India.

C--Contract Act, 9 of 1872, S. 56- Contract for sale of land-Land requisitioned by Government-Frustration of contract.

Where after a contract for sale of a house-site by development company, the land was requisitioned by the Government under the Defence of India Rules: Held, that the requisition order being of a temporary nature could not be said to have made the performance of the contract impossible and the contract had not been frustrated at all.

Supreme Court of India

Satyabrata Ghose vs Mugneeram Bangur & Co., And ... on 16 November, 1953

Equivalent citations: 1954 AIR 44, 1954 SCR 310

BENCH:

MUKHERJEA, B.K.

BOSE, VIVIAN

BHAGWATI, NATWARLAL H.

Print Page