FRUSTRATION OF PURPOSE IN ENGLISH AND INDIAN CONTRACT LAW

INTRODUCTION

Offer, acceptance and consideration are the three essential features of an enforceable contract. A contract requires completion and can only be discharged when both contracting parties fulfil their obligations, according to the terms of the contract. As a rule, in case of breach of contract, the defaulting party must compensate for the damages suffered by the innocent party. However, the doctrine of frustration may act as a legal defence in such cases. According to Section 56 of the Indian Contract Act, an agreement to do an act impossible in itself is void.[1]Not only that but a contract to do an act which, after the contract is made, becomes impossible, or because of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible/unlawful.[2]Though the word ‘frustration’ has not been expressly used in the legislation, Section 56 of the Indian Contract Act has been invoked on numerous occasions to deal with cases involving frustration of contract. In this sense, the doctrine of frustration encompasses three types of cases, including impossibility, illegality and frustration of purpose or object.

Frustration of purpose is applied when“it remains ‘possible’ to perform the contract in some sense of the term, but there is either a decrease in the value of such performance for the promisee or an increase in the cost/onerousness of performance for the promisor.”[3]Therefore, distinct from cases of impossibility, frustration of purpose applies only to those cases wherein intervening circumstances render the contractimpracticalto perform for one or both contracting parties.[4] Furthermore, frustration of purpose delves into concepts of a ‘common object’, a ‘common foundation’ and a ‘radical difference’ in the contract.The scope of frustration of purpose can be realisedby exploring the doctrine’s evolution in English Law.

FRUSTRATION OF PURPOSE IN ENGLISH LAW

The doctrine of frustration was first used in the 1863 landmark case of Taylor v Caldwell[5]. In this case, the claimants had hired a Music Hall and Surrey Garden from the defendants to host a concert. However, the Music Hall was destroyed in an accidental fire six days prior to the event. The claimant consequently sought damages for the breach of contract. Herein, the Queen’s Bench held that the defendants had not incurred liability to pay damages and that the circumstances had rendered the contract impossible to perform, resulting in frustration of the contract, thereby excusing both parties from its performance. Blackburn J’s judgement defined the principle to be applied “in contracts in which the performance depends on the continued existence of a given person or thing” and “that the impossibility of performance arising from the perishing of the person or thing” without fault of either party “shall excuse the performance.”[6] Interestingly, though the word ‘frustration’ was not used in this case, this decision is widely considered as the inception of the doctrine of frustration.

Similarly, the1903 coronation case of Krell v Henry[7] set forth the principle of frustration of purpose in contract law. In this case, the claimant had advertised that his flat with a view of the King’s coronation was to be let. With that in mind, the defendant agreed to hire one of the rooms for the two days the procession was supposed to take place. However, the event was cancelled due to the King’s illness. Consequently, the defendant refused to pay the money he owed to the claimant. Herein, the Court of Appeal upheld the principle applied in Taylor v Caldwell and ruled in favour of the defendant. As mentioned above, the decision in Taylor v Caldwell rested on “the idea of a continued common assumption of the parties about the existence of an object.”[8] This idea also features in cases of frustration of purpose. According to Vaughan Williams LJ, it is necessary to draw inferences from the circumstances to establish “the substance of the contract” and “whether it needs for its foundation the assumption of the existence of a particular state of things,” as recognized by both contracting parties.[9] Here, the concepts of a ‘common object’ and a ‘common foundation’ are explored. For a contract to be frustrated, the ‘common object’ needs to be defeated by the “non-existence of the state of things assumed by both parties,”which is essential for the performance of the contract. In the case of Krell v Henry, the contract was not just to rent an apartment but made under the assumption that it was for the main purpose of viewing the coronation. Therefore, when the coronation (common object) was cancelled, the very foundation or root of the contract was defeated, resulting in frustration of the contract.

However, in another coronation case, Herne Bay Steamboat Company v Hutton,[10]though the defendant agreed to hire the claimant’s vessel to view the naval review and cruise around the fleet, the subsequent cancellation of the naval review did not discharge the contract. This is because, the cancellation of the event did not amount to a ‘radical difference’ in the contract. As reasoned by Vaughan Williams LJ, the purpose for which the defendant entered into the contract, though defeated, was not laid down as the ‘foundation of the contract.’[11] According to Romer LJ, the contract was for the hiring of the steamship by the defendant for a certain voyage, an object that he alone was concerned with and not the plaintiffs.[12]As is the case with most agreements to ‘hire’ something, the contracting parties generally have different purposes. Therefore, the question of a ‘common object’ recognized by both contracting parties as the ‘foundation of the contract’ does not arise.

FRUSTRATION OF PURPOSE IN INDIAN LAW

Frustration of contract as enshrined in Section 56 of the Indian Contract Act was initially applicable only to cases of impossibility or illegality. However, the 1953 landmark case of Satyabrata Ghose v. MugneeramBangur& Co.[13]established the scope of the doctrine of frustration in Indian contract law. According to the facts of the case, the plaintiff had entered into a contract with the defendant company in hopes of purchasing a developed plot of land. The contract had no mention of a time limit for the completion of the contract. Several months later, due to prevailing wartime conditions, the Government requisitioned the plot of land for military purposes. As a result, the defendant surmised that the contract had become impossible to perform and offered the plaintiff a full refund. However, the plaintiff refused the offer and filed a suit demanding specific performance of the contract. Herein, the Supreme Court held that the term ‘impossible’ used in Section 56 does not pertain only to cases of “physical or literal impossibility.”[14] The doctrine of frustration u/s 56 can also be applied to cases wherein a change of circumstances, outside the control of either party, “upsets the very foundation of the contract, rendering its performance impracticable on part of one or both contracting parties.”[15] In this context, the contract in question could not have been frustrated due to the change in circumstances.Given the knowledge of both contracting parties of the prevailing wartime conditions and the lack of mention of a stipulated time period for the completion of the contract, the temporary requisition of the plot of land did not affect the foundation of the contract. Therefore, the contract still warranted performance and was not rendered impossible (in every sense of the term) by the supervening event. Hence, the Supreme Court ruled in favour of the plaintiff.This is howfrustration of purpose came to be read under Section 56 of the Indian Contract Act.

CONCLUSION

Following the advent of the Covid-19 pandemic, the doctrine of frustration has gained renewed relevance during these uncertain times. Due to an increased possibility of contracts remaining unfulfilled, it is essential to realise how the legal defence of frustration can be used in contract law.Summarily, the doctrine of frustration was initially granted in cases of physical impossibility. After its evolution, the concept of frustration of purpose/object came under the doctrine’s umbrella. For a contract to be discharged on the grounds of frustration of purpose, the ‘common object’ or the ‘foundation of the contract’ recognized by both contracting parties needs to be defeated, leading to a ‘radical difference’ in the contract. The non-occurrence of contemplated events or the occurrence of a supervening event, as observed in the above-mentioned cases, often affects the main purpose of the contract, rendering its core objective unattainable. This is how frustration of purpose is understood and applied – though rarely – in English as well as Indian cases.

Author(s) Name: Trijita Sengupta (O. P. Jindal Global University, Sonipat)

References:

[1]Indian Contract Act, 1872, s 56

[2]Ibid

[3]Shivprasad Swaminathan, ‘Frustration and Force Majeure: A Guide for the Perplexed – Part II’ (India Corp Law, 13 May 2020) <https://indiacorplaw.in/2020/05/frustration-and-force-majeure-a-guide-for-the-perplexed-part-ii.html> accessed 24 June 2022

[4]‘Commercial Frustration’ (Cornell Law School, June 2021) <https://www.law.cornell.edu/wex/commercial_frustration> accessed 24 June 2022

[5]Taylor v Caldwell [1863] 3 B & S 826

[6]Ibid (Blackburn J)

[7]Krell v Henry [1903] 2 KB 740

[8]Shiv Swaminathan, ‘Frustration and Force Majeure: A Guide for the Perplexed – Part I’ (India Corp Law, 12 May 2020) <https://indiacorplaw.in/2020/05/frustration-and-force-majeure-a-guide-for-the-perplexed-part-i.html> accessed 24 June 2022

[9]Krell v Henry [1903] 2 KB 740 (Vaughan Williams LJ)

[10]Herne Bay Steamboat Company v Hutton [1903] 2 KB 683

[11]Ibid

[12]Ibid

[13]Satyabrata Ghose v Mugneeram Bangur & Co. and Anr., (1954), AIR 44

[14]Ibid

[15]Ibid