The advent of civilization in human life gave birth to various forms of interactions amongst the individuals. Numerous aspirations have led to passion for monetary superiority and the art of profit making thereby giving rise to business activities. People carry out their business with one another in the form of sale and purchase which may be either for goods or services. In order to maintain cordial relations amongst themselves and ensuring smooth functioning of their business, parties often enter into contracts which bind them on agreed mutual terms and conditions.

Composition of Contracts

The contracts between the parties comprise of various clauses which regulate their responsibilities and conduct for the situations which they can anticipate. However, there arise circumstances which make the performance of the contract impossible. In case such supervening events arise for any reasons being beyond the control of a party, such party may be exempted from performing its due obligations while the contract stands frustrated.

Frustration of Contract

As per Section 56 of the Indian Contract Act, 1872, an agreement to do an impossible act is described as being void. The said provision also relieves a party from the discharge of their duties in event of an intervening act which renders the performance of the contract impossible or unlawful.

Grounds for Frustration

The law recognizes the applicability of the Doctrine of Frustration on the following grounds:

  • Destruction of Subject matter- Where the contract cannot be fulfilled owing to the failure of the essential element to continue in the state which it was expected to be at the time of formation of the contract. Destruction of the music hall (Taylor v. Caldwell[1]), loss of crops (Howell v. Coupland[2])have been identified as some of such situations.
  • Change of circumstances- Where the circumstances change post entering into the contract making the performance of the same impossible. Explosion of ship boiler preventing further journey to transport the goods (Joseph Steamline Ltd. v. Imperial Smelting Corp.[3] is one example.
  • Non-occurrence of contemplated event- Where the value of the performance is destroyed due to non-occurrence of the contemplated event which lays the foundation of the contract thus making its performance impossible. Ex. In case of Krell v. Henry[4] where room was to be hired only for the purpose of viewing coronation ceremony which got cancelled.
  • Death or incapacity of a party- Where the contract can no longer be performed due to the death or incapacity like illness (Robinson v. Davison[5]) the lead pianist could not perform being ill) of one of the contracting parties.
  • Government or Legislative intervention- Where new Government/ Legislative policies prevent the performance of the contract, e.g. ban on sale/purchase of specific products fundamental to the contract (Boothalinga Agencies v. V.T.C. Poriaswami[6]).
  • Intervention of war- Where outbreak of war makes it impossible to fulfil the contractual obligations (A. F. Ferguson & Co. v. Lalit Mohan Ghosh[7])

 

Force Majeure

Force Majeure meaning "superior force" refers to such situations which obstruct the continuation or lawful existence of a contract amidst the parties. The inclusion of such clause in the contract allows a party to suspend or terminate their duties and obligations in case of occurrence of an act which may be classified as Force Majeure. Usually parties mutually decide over the list of events to be categorized under this clause which include acts of war, riots, fire, flood, hurricane, earthquake, explosion, strikes, lockouts, slowdowns, prolonged shortage of supplies, governmental action prohibiting or impeding any party from performing its respective obligations under the contract causing its frustration.

In the news[8]

Recently, Reliance Industries, one of the leading business groups of India has announced a Force Majeure on gasoline exports from its Jamnagar site although the exact reason for the same has not yet May kindly see the been disclosed. In case of establishment of the Force Majeure, Reliance Industries would be able to avoid their duties as stated in their respective contracts with their clients.