The doctrine of frustration, also known as subsequent impossibility, provides a mechanism for discharging a contract when unforeseen events render performance impossible or radically different from what was originally contemplated, without fault of either party. In Ghana, this is rooted in common law, as seen in cases like Taylor v Caldwell (1863) 3 B & S 826, and applied in banking contracts such as loan agreements disrupted by events like the COVID-19 pandemic or the 2022 Domestic Debt Exchange Programme (DDEP). As a banking law expert, I’ll discuss the circumstances with practical examples from Ghanaian operations, emphasizing how banks like Ecobank Ghana renegotiate terms post-frustration to maintain compliance with BoG directives.

Circumstances Leading to Frustration:

1. Destruction of Subject Matter: If the essential subject of the contract is destroyed without fault, the contract is frustrated. In Taylor v Caldwell, a music hall burned down before a concert, discharging the hiring contract. In banking, if collateral (e.g., a warehouse) is destroyed by fire, a secured loan might be frustrated, allowing discharge unless insurance covers it under the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930).
2. Death or Incapacity of a Party: Personal contracts are frustrated by the death or permanent incapacity of a key party. For instance, a contract for personal services (e.g., a consultant’s advisory role in a bank merger) ends if the individual dies. In Ghana, this applies to executor-customer relationships; mental incapacity can frustrate banker-customer contracts, as per common law and the Mental Health Act, 2012 (Act 846).
3. Supervening Illegality: If performance becomes illegal due to a change in law, the contract is discharged. In Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, wartime laws frustrated a machinery supply contract. In Ghana, the 2017-2019 banking cleanup under BoG led to frustration of contracts with liquidated banks like UT Bank, where ongoing loans were discharged or transferred.
4. Government Intervention or War: Events like war, riots, or government expropriation can frustrate contracts. In Metropolitan Water Board v Dick Kerr & Co [1918] AC 119, World War I requisitioning frustrated a construction contract. Practically, Ghana’s DDEP (2022-2024) frustrated bond contracts for banks, leading to restructurings approved by BoG to avoid systemic risk.
5. Non-Occurrence of an Expected Event: If the contract’s foundation is an event that fails to occur, it may be frustrated. In Krell v Henry [1903] 2 KB 740, a coronation viewing contract was frustrated when the procession was canceled. In banking, a loan contingent on a project (e.g., infrastructure funded by Stanbic Bank Ghana) could be frustrated if the project is halted by unforeseen regulatory changes.

Limitations and Effects:

• Frustration does not apply to foreseeable events or self-induced impossibility (Davis Contractors Ltd v Fareham UDC [1956] AC 696).
• Effects: Automatic discharge from the frustrating event; parties are relieved of future obligations, with adjustments for benefits received under the Law Reform (Frustrated Contracts) Act (though Ghana relies on equity). In practice, banks include force majeure clauses to allocate risks, aligning with Basel III resilience standards.

This doctrine promotes fairness but is narrowly applied to preserve contractual sanctity, crucial for banking stability.