Friday, November 19, 2010

Doctrine of Frustration Indian Contract Act


In contract law, impossibility is an excuse for the nonperformance of duties under a contract, based on a change in circumstances (or the discovery of preexisting circumstances), the nonoccurrence of which was an underlying assumption of the contract, that makes performance of the contract literally impossible. For such a defense to be raised, performance must not merely be difficult or unexpectedly costly for one party; there must be no way for it to actually be accomplished.
Under the doctrine of frustration a contract may be discharged if after its formation
events occur making its performance impossible or illegal, and in certain analogous
situations.
Section 56 defines two ways of impossibility of performance-
  • Initial impossibility.- agreement to do an act impossible in itself is void. For example to discover a treasure by magic, being impossible of performance is void
  • Subsequent impossibility- some time the performance of a contract is quite possible when it made, but subsequent circumstances make it impossible or unlawful.
For example – A made an agreement to B certain item, but after word Government make any law against that article.

Either the case the contract become void.

Doctrine of Frustration-
In Taylor v/s Caldwell- court held that –rule is only applicable when the contract is positive and absolute, and not subject to any condition either expresses or implied.
In the above case the contract had become physically impossible because of the disappearance of the subject matter. But the principle is not confined to physical impossibilities. It extends also to cases where the performance of the contract is physically possible, but the object the parties have in mind has failed to materialize.

Thus the doctrine of Frustration comes into play in two types of situation-
  1. 1. Performance is physically cut off.
  2. 2. Object of contract has failed.
In Satyabrata Ghose v/s Mugneeram Bangur & Co- SC held that Section 56 applied in both of the situations.
Specific Ground for Frustration
  1. 1. Destruct of Subject Matter- the doctrine of impossibility applies with full force" where the actual and specific subject matter of the contract has ceased to exist".
Taylor v/s Caldwell is the best example of this class, where, a promise to let out a music hall was held to have frustrated on the destruction of the hall.
In Howell v/s Coupland- the defendant contracted to sell a specified quantity of potatoes to be grown on his farm, but failed to supply them as the crop was destroyed by a disease.
  1. 2. Change of Circumstances- where the circumstances arise which makes the performance of the contract impossible in the manner and at the time contemplated.
In Mehra  v/s Ram Chand om Prakash- Punjab high court held that . if that be the case, the change of circumstances not having been brought about by the fault of either party, the courts will not enforce the contract.
  1. 3. Non occurrence of Contemplated Event- sometimes the performance of a contract remains entirely possible, but owing to the non occurrence of an event contemplated by both parties as the reason for the contract, the value of the performance is destroyed. In krell v/s Henry is an apt illustrating. There , contract to hire a room to review a proposed coronation procession was held to have frustrated when the procession was postponed.
  2. 4. Death or incapacity of party- when a party to a contract excused from the performance due to death or incapacity of performance. It was held in Robinson v/s Davison- where a contract has been made for a pianist but due to illness she could not perform.
  3. 5. Government, Administrative or Legislative Intervention- A contract will be dissolve when legislative or administrative intervention has so directly operated upon the fulfillment of the contract for a specific work.
But where there such intervention is of a Temporary Nature, will not affect the performance of the contract.
In Satyabrata Ghose V/s Mugneeram Bangur & Co. SC, held the same.
  1. 6. Intervention of War- the intervention of war is also effect the performance of the contract.
  2. 7. Application of Lease- application of lease also consider the non performance of contract. But SC in Raja Dhruv Dev Chand v/s Raja Harmohinder Singh held that Section 56 of this Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease.
Effects of Frustration-
it is well settled that if and when there is frustration the dissolution of the contract occurs automatically. It does not depend, as does rescission of a contract, on the ground of repudiation or breach, or on the choice or election of either party.
  1. Frustration should not be self induced- in order to attract the principle that a party is not entitled to rely on his own act in not fulfilling a condition subsequent and thereby bringing a contract to an end.
  2. Frustration operates Automatically- it must be operates automatically to discharge the contract irrespective of the individuals concerned, their temperaments and failing, their interest and circumstances.
  3. Adjustment of Rights- the rights of the parties are adjusted under Section 65 which laid down the principle of restoration of advantage obtain by other party under void agreement.
Illustration-
pays B 1000 rupees in consideration of B's promising to marry C, A's daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the 1000 rupees.
  1. Quantum Meruit Claim- claim under the well known English law doctrine of quantum meruit have been allowed by the courts under this section. The SC observed in state of Madras v/s Dunkerley & Co. that a claim for quantum meruit is a claim for damages for breach of contract. The value of the material used or supplied is a factor which furnishes a basis for assessing the amount of compensation. The claim is not for price of goods sold and delivered but for damages. That is also the position under Section 65. In another case –Alopi Prasad v/s UOI reasonable compensation was awarded on the implication of a contract. It will not displace an express stipulation on the point.
In a subsequent case SC explained that requirements  of the claim. The original contract must be so discharged by the opposite party that the plaintiff is entitled to treat himself as free from the obligation of further performance and he must have elected to do so. The remedy is not available to the party who breaks the contract even though he might have partly performed it.
The remedy is restitutory, it is a recompense for the value of the work done by the plaintiff in order to restore him to the position which he would have been in if the contract had never been entered into. In this respect it is different from a claim for damages which is a compensatory remedy. The court accordingly did not allow the claim of a contractor for extra payment on the ground that he had to procure the raw material from a remote location.

In state of Rajasthan V/s Associated Stone Industries- it is not as if Section 65 works in one direction only. If one party to the contract is asked to disgorge the advantage received by him under a void contract, the other party may ask him to restore the advantage received by him. The restoration of the advantage and the payment of compensation have necessarily to be mutual.
Become Void- Section 65 also covers the subsequent void contract, means when the contract made it was lawful subsequently become void or impossible. Any benefit which has been passed under the contract from one party to other must be restored. This is subject to the expenses which have already been incurred by the other party in the performance of the contract.


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Friday, November 19, 2010

Doctrine of Frustration Indian Contract Act


In contract law, impossibility is an excuse for the nonperformance of duties under a contract, based on a change in circumstances (or the discovery of preexisting circumstances), the nonoccurrence of which was an underlying assumption of the contract, that makes performance of the contract literally impossible. For such a defense to be raised, performance must not merely be difficult or unexpectedly costly for one party; there must be no way for it to actually be accomplished.
Under the doctrine of frustration a contract may be discharged if after its formation
events occur making its performance impossible or illegal, and in certain analogous
situations.
Section 56 defines two ways of impossibility of performance-
  • Initial impossibility.- agreement to do an act impossible in itself is void. For example to discover a treasure by magic, being impossible of performance is void
  • Subsequent impossibility- some time the performance of a contract is quite possible when it made, but subsequent circumstances make it impossible or unlawful.
For example – A made an agreement to B certain item, but after word Government make any law against that article.

Either the case the contract become void.

Doctrine of Frustration-
In Taylor v/s Caldwell- court held that –rule is only applicable when the contract is positive and absolute, and not subject to any condition either expresses or implied.
In the above case the contract had become physically impossible because of the disappearance of the subject matter. But the principle is not confined to physical impossibilities. It extends also to cases where the performance of the contract is physically possible, but the object the parties have in mind has failed to materialize.

Thus the doctrine of Frustration comes into play in two types of situation-
  1. 1. Performance is physically cut off.
  2. 2. Object of contract has failed.
In Satyabrata Ghose v/s Mugneeram Bangur & Co- SC held that Section 56 applied in both of the situations.
Specific Ground for Frustration
  1. 1. Destruct of Subject Matter- the doctrine of impossibility applies with full force" where the actual and specific subject matter of the contract has ceased to exist".
Taylor v/s Caldwell is the best example of this class, where, a promise to let out a music hall was held to have frustrated on the destruction of the hall.
In Howell v/s Coupland- the defendant contracted to sell a specified quantity of potatoes to be grown on his farm, but failed to supply them as the crop was destroyed by a disease.
  1. 2. Change of Circumstances- where the circumstances arise which makes the performance of the contract impossible in the manner and at the time contemplated.
In Mehra  v/s Ram Chand om Prakash- Punjab high court held that . if that be the case, the change of circumstances not having been brought about by the fault of either party, the courts will not enforce the contract.
  1. 3. Non occurrence of Contemplated Event- sometimes the performance of a contract remains entirely possible, but owing to the non occurrence of an event contemplated by both parties as the reason for the contract, the value of the performance is destroyed. In krell v/s Henry is an apt illustrating. There , contract to hire a room to review a proposed coronation procession was held to have frustrated when the procession was postponed.
  2. 4. Death or incapacity of party- when a party to a contract excused from the performance due to death or incapacity of performance. It was held in Robinson v/s Davison- where a contract has been made for a pianist but due to illness she could not perform.
  3. 5. Government, Administrative or Legislative Intervention- A contract will be dissolve when legislative or administrative intervention has so directly operated upon the fulfillment of the contract for a specific work.
But where there such intervention is of a Temporary Nature, will not affect the performance of the contract.
In Satyabrata Ghose V/s Mugneeram Bangur & Co. SC, held the same.
  1. 6. Intervention of War- the intervention of war is also effect the performance of the contract.
  2. 7. Application of Lease- application of lease also consider the non performance of contract. But SC in Raja Dhruv Dev Chand v/s Raja Harmohinder Singh held that Section 56 of this Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease.
Effects of Frustration-
it is well settled that if and when there is frustration the dissolution of the contract occurs automatically. It does not depend, as does rescission of a contract, on the ground of repudiation or breach, or on the choice or election of either party.
  1. Frustration should not be self induced- in order to attract the principle that a party is not entitled to rely on his own act in not fulfilling a condition subsequent and thereby bringing a contract to an end.
  2. Frustration operates Automatically- it must be operates automatically to discharge the contract irrespective of the individuals concerned, their temperaments and failing, their interest and circumstances.
  3. Adjustment of Rights- the rights of the parties are adjusted under Section 65 which laid down the principle of restoration of advantage obtain by other party under void agreement.
Illustration-
pays B 1000 rupees in consideration of B's promising to marry C, A's daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the 1000 rupees.
  1. Quantum Meruit Claim- claim under the well known English law doctrine of quantum meruit have been allowed by the courts under this section. The SC observed in state of Madras v/s Dunkerley & Co. that a claim for quantum meruit is a claim for damages for breach of contract. The value of the material used or supplied is a factor which furnishes a basis for assessing the amount of compensation. The claim is not for price of goods sold and delivered but for damages. That is also the position under Section 65. In another case –Alopi Prasad v/s UOI reasonable compensation was awarded on the implication of a contract. It will not displace an express stipulation on the point.
In a subsequent case SC explained that requirements  of the claim. The original contract must be so discharged by the opposite party that the plaintiff is entitled to treat himself as free from the obligation of further performance and he must have elected to do so. The remedy is not available to the party who breaks the contract even though he might have partly performed it.
The remedy is restitutory, it is a recompense for the value of the work done by the plaintiff in order to restore him to the position which he would have been in if the contract had never been entered into. In this respect it is different from a claim for damages which is a compensatory remedy. The court accordingly did not allow the claim of a contractor for extra payment on the ground that he had to procure the raw material from a remote location.

In state of Rajasthan V/s Associated Stone Industries- it is not as if Section 65 works in one direction only. If one party to the contract is asked to disgorge the advantage received by him under a void contract, the other party may ask him to restore the advantage received by him. The restoration of the advantage and the payment of compensation have necessarily to be mutual.
Become Void- Section 65 also covers the subsequent void contract, means when the contract made it was lawful subsequently become void or impossible. Any benefit which has been passed under the contract from one party to other must be restored. This is subject to the expenses which have already been incurred by the other party in the performance of the contract.


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