Frustration of Contract

Frustration of Contract: When the Foundation Is Swept Away

A contract is made upon a set of assumptions about the world — that the thing to be sold will exist, that the venue hired will be available, that the law will not change to forbid the performance. Where, after the contract is made, an event occurs that destroys these foundational assumptions and makes performance impossible or radically different from what was undertaken, the doctrine of frustration steps in. The contract is discharged; the parties are released from their obligations; neither can sue the other for non-performance. The law recognises that a bargain made upon one footing cannot survive the disappearance of that footing.

The Scope of Section 56

Section 56 of the Indian Contract Act, 1872 codifies the doctrine in India: where a contract to do an act which, after the contract is made, becomes impossible or, by reason of some event which the promisee could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. The Supreme Court has interpreted 'impossibility' broadly — it is not confined to literal physical or legal impossibility but extends to commercial frustration, where the commercial foundation of the venture has been destroyed, and to situations where performance, though physically possible, would render the obligation something radically different from what the parties undertook. The leading decision in Satyabrata Ghose v. Mugneeram Bangur & Co. (1954) articulated this expansive Indian approach.

What Frustration Is Not

Frustration must be distinguished from related doctrines that do not discharge the contract. Mere hardship, expense, or inconvenience is not frustration: if performance remains possible, the contract survives even if it has become more onerous than the parties anticipated. Force majeure clauses are contractual allocations of risk that may excuse performance in defined circumstances; where such a clause exists, it governs, and the doctrine of frustration applies only as a fallback. Foreseeability of the event at the time of contracting is relevant: if the supervening event was clearly within the contemplation of the parties and they proceeded anyway, the court may infer that they accepted the risk. Self-induced frustration — where the event arises from the act or default of one of the parties — does not excuse that party. The doctrine is an emergency release, invoked only where performance has genuinely become impossible or pointless through no fault of either party.

“A contract rests upon the world as the parties found it. When that world shifts beneath the bargain — when the thing contracted for ceases to exist, when the law forbids what it once allowed, when the venture's very purpose is undone — the law releases the parties from a promise neither can sensibly keep. Frustration is the law's mercy to those caught in events beyond their making or control.”