Discharge of Contract by Frustration



The second para of section 56 Contract Act 1872 states that “A contract to do an act which after the contract is made becomes impossible, or, by reason of some event which the promisor could not prevent, becomes unlawful, becomes void when the act becomes impossible or unlawful.”

Becomes impossible:

Agreement, performance of which by promisor was impossible in itself, was void. Agreement performance of which was possible at the time of execution but on account of subsequent event became impossible provided such impossibility or unlawfulness was not within the knowledge of promisor, were also void. Performance of a contract may become impossible because of the destruction of subject matter or of anything essential to the performance of the contract or in case of contract of service by death or illness of party concerned. A contract may become impossible by change in law which has the effect of rendering the contract unlawful which was lawful at the time when it was made. A contract may also become impossible of performance because a state of things which was the basis of the contract had ceased to exist and finally a contract may become impossible of performance in sense that circumstances have intervened which render the performance within the time, in a way contemplated, impossible. Thus where the goods which were the subject matter of contract are damaged through fault of no body, the contract cannot be enforced. In such a case the doctrine of frustration would become applicable from the time the goods are destroyed or ceased to exist.

Frustration of contract:

The doctrine of frustration comes under S. 56 but it is really an aspect or part of the law of discharge of contract by reason of the supervening impossibility or illegality of the act agreed to be done. In case of an executor contract, where an uncontemplated turn of events has occurred which makes further performance impossible or unlawful, the contract becomes frustrated at that point end; the parties are absolved from further performance under it.

In order that S. 56 may apply the following conditions must be fulfilled.

  1. That the act should have become impossible.
  2. That the impossibility should be by reason of some event which the promisor could not prevent.
  3. That the impossibility should not be self-induced one or due to his negligence.

Frustration by act of Government:

Where by the act of the government the performance of a contract becomes impossible and the parties to a contract had not anticipated any such eventuality; and none of the parties is liable for any loss or damage to the other. Therefore, the parties are not liable if a contract of delivery of goods becomes impossible of performance owing to the requisitioning of ships by the government.

Prohibition of sale:

Where under the law the sale of an article was not prohibited at the time when the contract of sale was made but it was prohibited before it was performed, the contract was frustrated and no party to it was bound to perform his part.

Thus where the parties had entered into a contract for sale of imported truck chassis but before the sale could take place, it was prohibited under Essential Commodities (contract of distribution) Order 1953, it was held that parties to a contract are not bound to perform their part of the contract.  

Declaration of war:

If a contract is entered into, it becomes illegal owing to the declaration of war, etc it cannot be enforced. Thus, where a contract of carrying goods to specified part is frustrated due to declaration of war it becomes void, and plaintiff is not entitled to compensation for its breach. Where due to outbreak of war the performance of the contract by the insured, by making payment of the premium to the enemy insurance company with whom he was insured became impossible and illegal under the Defence of Pakistan Rules the contract become frustrate and void.

Death or insanity:

Generally a contractual obligation undertaken by deceased promisor would be binding on his legal representatives to the extent of the estate of the deceased promisor in their hands as this obligation of the legal representative is not personal. However, there is one exception to this general rule, in case of contracts which involve personal elements and if personal skill is essence of contract, the obligation under the contract can only be discharged by that party whose personal skill is involved. The legal representative of the deceased person cannot be required to perform nor can they render performance of contract involving personal skill and action on the death of a person on principle, the benefit and burden of contract pass to the legal representative as part of his estate. [Keith on elements of law of contract].

Effect of frustration:

Where there is frustration the contract automatically dissolves. It does not depend on the choice or election of either party.

The doctrine of frustration is not really an exception to the rule that a man must pay damages if he breaks the contract for there can be no default in not doing that which the law prohibits.

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