Monday, 20 June 2022

Discharge by Frustration in Contract Act

 Discharge by Frustration in Contract Act

By Shweta Nair

A contract may be impossible to be performed however, there are two types of impossibility: 

  1. Initial Impossibility- i.e., at the time of entering into the contract itself, it was impossible to be performed. In such a case, the question of discharge does not arise because the contract itself is void in the first place. 

  2. Subsequent Impossibility- These are cases where the contract was very much valid when it was entered into but subsequently something happened which rendered it impossible to be performed. This is called discharge of supervening impossibility. It is also said that the contract is frustrated. Hence, this is known as the doctrine of frustration. 

A contract may be frustrated in the following ways: 

  1. Destruction of the subject matter of the contract – If the very premise on which the contract is based gets destroyed then the contract will get discharged due to supervening impossibility. 

Case- Taylor v. Caldwell (Musical Hall Case)- It was held that liability cannot be imposed on the defendants. Blackburn J observed that there is an implied term in the contract that the concert hall would subsist at the time of the contract. This term made the basis of the law of frustration. 

Illustration: X enters into a contract with Y to sell his car. The car gets stolen before anything further is done. The contract shall be discharged. 

  1. Cancellation of an expected event – If the whole contract is based on an expected event to happen and such event is cancelled due to unavoidable reasons, not in control of the parties then the contract shall be frustrated. 

Case – Krell v. Henry (Coronation Case), it was held that defendant is exempted from performance because his purpose that is to watch the coronation of the king, as understood by both the parties for entering into the contract was frustrated.  

  1. Death or Permanent incapacity of the parties- However, it is to be noted that only contracts of a permanent nature shall be frustrated in the event of death of the party, otherwise the contract devolves to the legal heirs and representatives of the party who has died. 

  1. Change of Law- If the contract is rendered impossible due to a subsequent change in the law of the land, it is discharged. 

Illustration: A enters into a contract with B for taking his wine-shop business for conducting. Subsequently, the government of the state declares prohibition as selling of liquor in the state is no longer possible. The contract would be discharged.  

  1. Vis Major (Act of God) – These are cases which become impossible due to natural calamities such as earthquakes, floods, tsunami etc. 

  1. Outbreak of War – During times of war, many a contract are suspended if the situation prevents its execution. 

Exceptions to Frustration: 

In the following cases, the contract may appear to have become impossible. However, it would not be discharged. 

  1. Commercial Impossibility- If the contract is no longer commercially viable that does absolve the affected party from their responsibility to perform it. Such a party would have to bear the loss and yet fulfil his obligation. 

  1. Self-induced Frustration- If the contract has become impossible due to some fault of the party himself then he cannot claim frustration. 

Case- Maritime National Fish v. Oceanic Trawlers Ltd. 

Case- Avery v. Bowden 

Facts- The owner of a cargo entered into a contract with a labour contractor for the unloading of a ship on a particular day. He was given 3 days’ time to unload the ship however when the ship arrived at the destination, the contractor expressed his inability due to some unrest among his labourers. The cargo owner however decided to wait as 3 days’ time was available. However, on the very second day, war broke out. It was held that the cargo owner has lost his remedy as the contract has become frustrated. 

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