This article is written by Darshika Lodha, a BBA.LLB(Hons.) student of Unitedworld School of Law, Karnavati University. This article deals with the Performance and Frustration of Contract.
The contract imposes a legal obligation on the contracting parties to fulfil their mutual obligations and continues to do so until the contract has been concluded or terminated. The most normal and common way to discharge a contract is to execute it. A person performing a contract by the terms of the contract shall be relieved of any additional obligations. The doctrine of frustration comes into play when the contract becomes impossible to perform, after it has been concluded, because of circumstances beyond the control of the parties.
Performance of Contract
The term ‘Performance of the Contract’ means that both the Contractor and the Contractor have fulfilled their respective obligations under the Contract. For example, A visits a stationery shop to buy a calculator. The shop assistant delivers the calculator and A pays the bill. The contract is said to have been concluded by mutual performance. Section 27 of the Indian Contract Act says that “The parties to the contract must either make or agree to make their respective promises, unless they are exempted or excused under the provisions of this Act or by any other statute.”
Types of Performance
1. Actual Performance
If the contractor has fulfilled his obligation by the terms of the contract, the promise is said to have been made. Real performance provides discharge to the contract and the responsibility of the contractor ceases to exist.
2. Substantial Performance:
It is where the work decided is almost over. The court then orders the payment of the money but deducts the sum needed to correct a minor existing defect. Substantial performance is applicable only if the contract is not an entire contract and is severable. The reasoning behind the development of the doctrine of significant performance is to prevent the risk of one party violating its obligations by arguing that the contract has not been completely enforced. However, what is perceived to be a significant accomplishment is a question of fact to be determined in both cases. It will depend to a large extent on what remains undone and its value compared to the contract as a whole.
3. Partial Performance
That is where one of the parties has entered into the contract, but not fully, and the other party has demonstrated willingness to accept the part of the contract. Partial performance can occur where there is a deficiency in the delivery of goods or where the service is not completely performed.
Concept of Frustration
Contracts entered into between the parties impose contractual obligations on both parties for the performance of the contract. However, many times unforeseen or unforeseen occurrences occur which make the performance of contracts impossible due to no fault of either party. In such cases, the contract is said to have been frustrated. Frustration of the contract results in an involuntary extinction of the contractual obligations of both parties and, consequently, the parties are relieved of their rights and obligations.
Factors of Frustration of Contract
1. Impossibility of Performance
The doctrine of the Frustration of the contract arises from the impossibility of an act. But the principle is not limited to physical impossibilities. In the case of Satyabrata Ghose vs. Mugneeram Bangurn & Co & Anr, it was held that ‘impossible’ was not used for physical or literal impossibility in Section 56 of the Act. The performance of an act may not be impossible, but it may be impracticable and useless, and if an untoward event or a change of circumstances completely upsets the very foundation on which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act that he promised to do. Therefore, if the object of the contract is lost, the contract will be frustrated.
2. Change of Circumstances:
The Courts declare disappointment with the contract on the ground that it is subsequently difficult to find that the entire intent or foundation of the contract has been compromised by the interference or nature of an unwanted event or alteration of circumstances beyond what was envisaged by the parties at the time they agreed. The modified circumstances make the execution of the contract unlikely and the parties are absolved from the further performance of the contract because they did not guarantee an impossibility.
3. Loss of Object
The impossibility provided for in Section 56 of the Act is not limited to that which is not humanly conceivable, as held in the case of Sushila Devi vs. Hari Singh. The Court held that if the performance of the contract is impracticable or meaningless in the light of the object and intent of the parties, it must be held that the performance of the contract has become impossible. But the supervening incidents should take away the very foundation of the contract, and it should be of such character that it is at the heart of the contract. As was the case with the lease of property, which, after the unfortunate partition of India and Pakistan, left the disputed property situated in India to Pakistan, making the terms of the agreement impossible.
Performance in its literal sense implies the completion of a task or action. Performance in its legal sense means the fulfilment or satisfaction of the obligations of the parties which they have against the other party by the contract they have entered into and in Frustration of contract the contract is void and discharges the contractual obligations of the parties. Nevertheless, Section 65 of the Act provides that, when an agreement has become void, the person who has received some benefit under that agreement is ‘bound’ to restore it or to make restitution for it from whom it has been received. The problem arises as to how this provision even refers to contracts made invalid by dissatisfaction. Frustration of the contract takes place beyond the responsibility or power of either party and, thus, a party should not be made to pay in such a situation. However, the failure to provide adequate compensation may also result in losses for the other party.
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