This article is written by Adhila Muhammed Arif, a student of Government Law College, Thiruvananthapuram. This article seeks to explain the doctrine of supervening impossibility, also known as frustration, which is one of the modes of discharge of a contract, along with its exceptions. 

This article has been published by Sneha Mahawar.

Introduction 

The doctrine of supervening impossibility is also called the doctrine of frustration, which is one of the aspects of the law of contracts. It deals with the enforceability of contracts on the occurrence of some unforeseen incidents. The word ‘frustration’ means ‘efforts made ineffective’ and it is one of the modes by which a contract can be discharged as per Section 56 of the Indian Contract Act, 1872

Doctrine of supervening impossibility: meaning 

The doctrine of supervening impossibility or the doctrine of frustration becomes applicable when a contract becomes impossible to perform due to the happening of some unforeseen circumstances which were beyond the control or calculation of the parties involved. When such a contract becomes entirely impossible without the fault of the parties, the contract gets dissolved by this doctrine. This doctrine is based on the maxim ‘Lex non cogit ad impossibilia’. The maxim essentially means that “law does not compel the impossible”. This can arise when there is a war, act of god, amendment of laws, death of a party, etc. The following are the requisites for the application of this doctrine: 

  1. When an event or incident occurs that the parties were unable to contemplate when the contract was formed. 
  2. None of the parties are at fault for the occurrence of the event. 
  3. The contract if performed would turn out different from what the parties agreed to initially. 

Applicability of the doctrine of supervening impossibility

The doctrine is also subject to some limitations or rules which are the following: 

  1. The doctrine is based on the presumed intention of parties. This means that no implied condition can be taken into consideration if it is in contravention with the express terms. 
  2. Where at least one of the parties is to be blamed for the occurrence of the event, the doctrine loses its force. 
  3. Commercial impossibility is not taken into consideration. 
  4. This doctrine applies only when the intentions or terms of both parties cannot be met. 
  5. Where the contract can be performed through multiple modes, the doctrine fails to apply. 

The doctrine of supervening impossibility in English Law

The Law Reform (Frustrated Contracts) Act, 1943

The Law Reform (Frustrated Contracts) Act, 1943 passed in England has certain provisions that abide by this doctrine, which are as follows: 

  1. The parties to a contract do not have to perform their obligations once the contract gets discharged. 
  2. Any money paid for the purpose of fulfilling a contract can be recovered once the contract gets frustrated and no money has to be paid after a contract gets frustrated. 
  3. If any one of the parties has done some work as promised under the contract, such a party can recover compensation for the work he undertook once the contract gets frustrated. 

Case laws

The case of Taylor v. Caldwell (1863) tremendously changed the law of contracts in England. In this case, an opera house was rented for the purpose of holding concerts. The opera house, however, was destroyed by fire before the night of the concert. Blackburn J held that on the frustration of a contract it gets discharged because the discharge of the contract can be considered to be an implied term that the parties agreed to on the happening of the uncertain events. This theory is called the implied term theory. 

In the case of Krell v. Henry (1903), it was held that when an express condition or state of things that is essential to a contract ceases to exist, the contract becomes impossible to perform and the doctrine of frustration applies. 

In the case of Ocean Tramp Tankers Corporation v. VIO Sovfracht (the Eugenia) (1964), it was held that when a fundamentally new situation occurs which makes it unreasonable and unjust to hold the parties accountable to perform their obligations, the contract becomes discharged. 

In the case of Davis Contractors Ltd. v. Fareham Urban District Council (1956), when new circumstances arise which is different from what the parties anticipated for performing the contract, the doctrine of frustration applies. This theory is called the construction theory, which was developed by Lord Radcliffe. 

The doctrine of supervening impossibility in Indian law

Indian Contract Act, 1872

Section 56

The doctrine of frustration or doctrine of supervening impossibility is provided in Section 56 of the Indian Contract Act, 1872 under the heading of ‘agreement to impossible act’. The section can be divided into three parts, which are the following: 

  • As per this Section, an agreement to do an impossible act is void. This provision deals with acts that are impossible in itself such as bringing a dead person alive, discovering treasure by magic, etc. Such impossibilities can also be termed as ‘initial impossibilities’. For instance, A is a man who is already married to B. He enters into a contract promising to marry C. It is impossible for him to perform this contract as he is already married. 
  • Once a contract to do something by reason of the happening of some event becomes impossible or unlawful to perform, it turns void. This part of the provision is what actually deals with the doctrine of supervening impossibility or doctrine of frustration. 
  • The section also provides that in situations where the promisor knew or might have known with reasonable diligence, that his obligation would become impossible or unlawful, which the promisee did not know of, then the promisor can be made to compensate the promisee for any loss that he sustains due to the non-performance of the obligation. 

The following are some examples to illustrate the doctrine of supervening impossibility: 

  • A and B enter into a contract promising to marry each other. A becomes insane before the marriage is performed. The contract becomes void due to insanity.
  • If A and B enter into a contract where A promises to take in cargo for B at a foreign port. A’s government later declares war against the country in which the port is located. The contract becomes void as a result of the declaration of war. 

From the above explanation and examples, it can be concluded that a contract becomes frustrated as per the Indian law of contracts on the satisfaction of the following conditions: 

  • The performance of the contract has become impossible;
  • The impossibility is something which the promisor could not anticipate or prevent; and
  • The impossibility is not caused by any act or negligence of the promisor. 

Section 65

Section 65 of the Indian Contract Act provides that once an agreement is discovered to be void, or when it subsequently becomes void, any party who has received any benefit under the agreement is bound to restore such benefit or compensate for it to the person who provided the benefit. 

For instance, A and B enter into a contract where A promises that he would deliver 100 maunds of rice produced by him to B before the first of February. However, A only gets to deliver 50 maunds of rice to B because of a natural calamity that destroyed his grains. B retains the 50 maunds of rice, which means that he accepted the contract and thus, he should pay for the 50 maunds of rice. 

Case laws

In the case of Satyabrata Ghose v. Mugneeram Bangur and Co. (1953), the defendant company promised the plaintiff that they would develop a plot of land by constructing roads and drains and then sell the plot to the plaintiff. Later, some portion of the land got requisitioned for military purposes. The Supreme Court decided that since only a portion of the land got requisitioned and not the whole of it, the contract had not become impossible as per Section 56. 

In the case of Sushila Devi v. Hari Singh (1971), there was a contract regarding giving property on lease. Unfortunately, the property which was situated in Gujranwala and became a part of Pakistan due to partition. The Supreme Court held that the term ‘impossibility’ need not be confined to practical impossibility. It could also mean impracticability with regards to the object and purpose of the parties to the contract. For this, some supervening event must have occurred which impacts the foundation of the contract. Thus, the contract was held to be frustrated. 

Types of supervening impossibility 

The following are the main types of supervening impossibility or post-contractual impossibility: 

  1. Destruction of the subject matter of the contract: A contract gets discharged when its subject matter gets destroyed without the fault of the parties subsequent to its formation. The case of Taylor v. Caldwell is an example of this. 
  2. Death, illness or personal incapacity: When the performance of a contract is dependent upon the personal skills or qualification of any party, the contract becomes discharged if the party becomes ill, incapable or dead before its performance. 

In the case of Robinson v. Davison (1871), an artist promised to perform at a concert for a specified remuneration. She fell ill before she could perform her obligation. This led to the frustration of the contract. 

  1. Change of law: In some cases due to unexpected subsequent changes in law, a contract may be rendered impossible by making it illegal. 

In the case of Firm Bachhraj Amolakchand v. Firm Nand Lal Sitaram (1962), there was a contract regarding the export of grains from one particular state. The state government however placed some restrictions on the export of grains as a result of which the contract became discharged. 

  1. Declaration of war: When a person has entered into a contract with a citizen of another country, it becomes unlawful and void once a war is declared by the country of one of the parties against the other. 

In the case of Metropolitan Water Board v. Dick Kerr & Co. Ltd. (1917), A and B had entered into a contract where A promised to build a reservoir for B in three years time. Unfortunately, a war broke out and the work had to be suspended as per government orders. As the war went on to five years, the work could not be performed. The contract became discharged. 

  1. Non-existence of a particular state of things: If a contract is made on the basis of a particular state of things, the contract becomes frustrated once the state of things changes or stops existing. 

Exceptions to the doctrine

The impossibility of performance in itself is not always a valid defence to render a contract void. The impossibility must be absolute. The following are some of the factors that would not be accepted as the supervening impossibility of performance: 

  1. Commercial impossibility: A party cannot be discharged from performance just because it is non-profitable for them. During the course of performing a contract, there might be sudden rises in prices of goods and services that could make it unprofitable for any of the parties to a contract. However, such difficulties or burdens incurred while a contract is performed are not considered as a physical impossibility. Physical and legal impossibility is not the same as commercial impossibility. 
  2. Self-induced impossibility: When the impossibility is due to the fault of any of the parties, the doctrine does not apply. For instance, A, a lorry owner promises to B that he will give him his lorry for hire. However, he had to renew his lorry’s licence, which he failed to do so. He cannot avoid the contract since the licence has not been renewed due to his own actions. 
  3. Inherent or foreseeable risks: Most businesses by nature have certain inherent risks that the parties to a contract can foresee. In such cases, the parties are supposed to take due care and caution to prevent the happening of such events. This is because the parties to such a contract are consciously accepting its inherent risks.  

In the case of Lucky Bharat Garage Pvt Ltd v. South Eastern Coalfields Ltd. (2011), a common carrier had the obligation to ensure the safety of goods against any risk, except against the act of god or state enemies. Unfortunately, the goods he was entrusted with was set on fire by a mob after Smt. Indira Gandhi’s assassination. However, he was held liable for the destruction as the risk was inherent in the contract. 

  1. Failure of a third party: If the promisor relied on a third party for performing his obligation, the contract does not become discharged merely due to the default of the third party. For instance, A and B enter into an agreement where A promises to sell him a specific quantity of cotton goods to be manufactured by a specific mill. The contract also had a condition regarding the time of delivery. The mill failed to produce the cotton goods. As a result, A could not perform his obligation. B can recover compensation from A for the losses incurred due to his failure. 
  2. Failure of one of the objects: Sometimes a contract can be entered into with multiple objects. In such contracts, the failure of one of the objects does not render the contract frustrated. 

In the case of H.B. Steam Boat Company v. Hutton (1903), the steamboat company agreed to let out a boat to Hutton for two purposes. The first purpose was for viewing the naval inspection on the occasion of the coronation of Edward VII. The second purpose was to sail around the fleet. The king fell ill due to which the naval inspection got cancelled. However, the fleet was assembled. The boat could still be used for the second object. The contract was not frustrated. 

Conclusion

To conclude, the doctrine of supervening impossibility or the doctrine of frustration is one of the modes by which a contract can be discharged or held to be void. This is enshrined in Section 56 of the Indian Contract Act, 1872. Whenever a contract becomes impossible to perform due to an unexpected subsequent physical or legal impossibility, there is no obligation on the parties to perform it. However, the impossibility should not be self-induced. It is also important to note that supervening impossibility is not the same as an initial impossibility. The Indian Contract Act also provides for compensating any party who has already performed before the frustration, which benefits the other party. 

References


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