Frustration of Contract in Different Legal Systems

Frustration of contract is a legal doctrine that allows parties to be released from their contractual obligations when unforeseeable events occur that make performance impossible or radically different from what was originally contemplated by the parties. While the concept of frustration of contract is recognized in many legal systems around the world, the criteria for determining frustration and the scope of relief available may differ significantly between common law and civil law jurisdictions.

Definition of Frustration of Contract

Frustration of contract refers to the situation where an unforeseeable event occurs after the formation of a contract that renders the performance of the contract impossible or radically different from what was originally intended.

The event must not have been caused by either party, and it must have occurred after the formation of the contract.

Examples of Frustration of Contract 

Some examples of events that may constitute frustration of contract include

• Destruction of the subject matter of the contract (e.g., a building that was to be leased burns down)

• Death or incapacity of a party necessary for the performance of the contract (e.g., a singer who was contracted to perform in a concert dies before the concert date)

• Government intervention or legislation that makes the performance of the contract illegal (e.g., a law that prohibits the sale of a certain type of product)

Effects of Frustration of Contract

When frustration of contract occurs, the parties are discharged from their obligations under the contract. This means that they are no longer bound to perform their obligations and are not liable for any damages for non-performance. However, any benefits that have already been received by either party must be returned.

Legal Framework for Frustration of Contract

The legal framework for frustration of contract varies depending on the jurisdiction. In common law jurisdictions such as the UK, frustration of contract are a common law doctrine that has been codified in statute (the Law Reform (Frustrated Contracts) Act 1943). In civil law jurisdictions, the concept of frustration of contract is generally recognized, but the specific legal framework may differ.

• United States − In the United States, the doctrine of frustration of contract is recognized under the common law. Courts have held that frustration occurs only when an unforeseeable event, such as a natural disaster or a government regulation, makes performance impossible. Parties seeking to rely on frustration must show that the frustrating event was not foreseeable at the time the contract was formed and that the parties did not allocate the risk of the event in the contract.

• United Kingdom − In the United Kingdom, frustration of contract is recognized under the common law. The courts have held that frustration occurs when an unforeseen event occurs that makes performance impossible or radically different from what was originally contemplated by the parties. Frustration is a high bar to meet, and courts have been reluctant to apply it in many cases. Parties seeking to rely on frustration must show that the event was unforeseeable, that it was not caused by the party seeking to rely on frustration, and that it fundamentally changes the nature of the contract.

• Germany − In Germany, frustration of contract is recognized under the Civil Code. The doctrine is known as "impossibility of performance" and applies when an unforeseeable event makes performance impossible or substantially more difficult. German law also recognizes the principle of "force majeure," which applies when the event is not unforeseeable.

• Canada − In Canada, the doctrine of frustration of contract is recognized both at common law and under the Civil Code of Quebec. The criteria for determining frustration are similar to those in the United Kingdom, although the Civil Code of Quebec provides more specific guidance on the circumstances that may give rise to frustration. Parties seeking to rely on frustration must show that the frustrating event was beyond their control and that it makes performance impossible or fundamentally different from what was originally contemplated by the parties.

• Australia − In Australia, frustration of contract is recognized under the common law. The criteria for determining frustration are similar to those in the United Kingdom and Canada, although courts have been more willing to apply the doctrine in cases where performance has become impractical or substantially more difficult, rather than impossible.

• France − In France, frustration of contract is also recognized under the Civil Code. The doctrine is known as "impossibility of performance" and applies when an unforeseeable event makes performance impossible or excessively onerous. The party seeking to rely on the doctrine must show that the event was beyond their control and that it makes performance impossible or excessively onerous. French law also recognizes the principle of "force majeure," which applies when the event is not unforeseeable.

• Japan − In Japan, the doctrine of frustration of contract is recognized under the Civil Code. The doctrine is known as "impossibility of performance" and applies when an unforeseeable event makes performance impossible or significantly more difficult. The party seeking to rely on the doctrine must show that the event was beyond their control and that it makes performance impossible or significantly more difficult. However, Japanese law also recognizes the principle of "impracticability of performance," which applies when performance is still possible but has become excessively burdensome.

Conclusion

Frustration of contract is an important concept in contract law that allows parties to be discharged from their obligations under a contract when unforeseeable events occur. While the legal framework for frustration of contract may vary depending on the jurisdiction, the underlying principles are generally consistent. It is important for parties to be aware of the possibility of frustration of contract when entering into contractual relationships and to include provisions that address this possibility.

Frequently Asked Questions

Q1. What is the difference between frustration and breach of contract?

Ans. The doctrine of frustration, however, allows for liability to be avoided where a breach has occurred and the non-performing party is generally accountable for damages. When a discouraging occurrence occurs and neither party is obligated to fulfill their duties, the contract is instantly discharged.

Q2.What is the rule in Hadley v Baxendale?

Ans. Baxendale v. Hadley and Others (1854) Leading English contract law case, EWHC J70. It establishes the guiding principle for calculating consequential damages resulting from a breach of contract: the party who breaches the agreement is responsible for all losses that the parties should have been able to predict.

Q3. What are the factors of frustration in contract law?

Ans. When an unexpected circumstance makes it impossible to carry out the terms of the contract, frustration applies. A contract that has been frustrated effectively terminates, and the parties are released from their responsibilities.

Q4. What is frustration in Indian Contract Act?

Ans. The doctrine of frustration frequently refers to a contract's inability to be performed. It is evident that this means neither party could fulfill their end of the bargain due to a circumstance outside of their respective spheres of influence.