Discharge by impossibility of performance

In one minute

If an act is impossible from the start, the agreement is void. If it becomes impossible or unlawful after the contract is made, through no fault of the promisor, the contract becomes void at that moment. This is the doctrine of frustration, found in section 56.

The doctrine is narrow. A rise in cost, a delay or a bad bargain is not enough. In exams, the grounds, the limits and the cases decide the marks. In real life, it decides who bears the loss when a fire, a war, a new law or a pandemic upsets a contract.

Exam focus

Frequency: Frequently asked
Usually asked as: Both (long answer and short answer)

Legal provision

Section 56, first paragraph: an agreement to do an act impossible in itself is void.
Section 56, second paragraph: a contract to do an act that, after the contract is made, becomes impossible, or becomes unlawful by some event the promisor could not prevent, becomes void when the act becomes impossible or unlawful.
Section 56, third paragraph: where a person promises something he knew, or with reasonable diligence might have known, to be impossible or unlawful, and the promisee did not know, the promisor must compensate the promisee for the loss through non-performance.
Section 65: when an agreement is found void, or a contract becomes void, a person who received an advantage under it must restore it or make compensation for it.
Section 32: a contract contingent on an event cannot be enforced until the event happens. If the event becomes impossible, the contract becomes void.
Sale of Goods Act, 1930, section 7: an agreement to sell specific goods is avoided if the goods, without fault of seller or buyer, perish before the risk passes to the buyer.

Illustrations to section 56:

(a) A agrees with B to discover treasure by magic. The agreement is void.
(b) A and B contract to marry each other. Before the time fixed, A goes mad. The contract becomes void.
(c) A contracts to marry B, being already married to C and forbidden by his law to practise polygamy. A must compensate B for the loss caused by non-performance.
(d) A contracts to take in cargo for B at a foreign port. A's Government afterwards declares war against the country where the port is. The contract becomes void when war is declared.
(e) A contracts to act at a theatre for six months for a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on those occasions becomes void.

Meaning and definition

Frustration is the discharge of a contract because a supervening event makes performance impossible or unlawful, or destroys the purpose the parties had in view. Section 56 does not use the word "frustration". It speaks of impossibility. The two words describe the same doctrine in India.

The law excuses the parties because it does not compel what is impossible. The maxim lex non cogit ad impossibilia says the law does not require the impossible. It would be unjust to make a promisor pay damages for failing to do what no one could do. The diagram gives the tests for the second paragraph.

Does section 56 discharge this contract?How to read this: go down the boxes in order. A "No" answer sends you to the result beside the box.

1. Did an event after the contract was made make performance impossible or unlawful, or destroy its basis? section 56, second paragraph
No: there is no frustration.
2. Was the event one the promisor could not prevent, and not caused by his own act or default? section 56
No: self-induced impossibility is not frustration.
3. Is performance impossible or radically different, and not merely costlier, slower or harder? Satyabrata Ghose; Energy Watchdog
No: hardship is not frustration.
4. Is the event outside any clause in the contract that deals with it? section 32
No: the clause governs, for example a force majeure clause.
All answers "Yes": the contract becomes void when performance becomes impossible or unlawful. Each party must restore any advantage received (section 65).

Detailed explanation

Step 1: the three paragraphs

Section 56 has three parts. The first deals with an act impossible at the start. The second deals with an act that becomes impossible or unlawful later. The third gives compensation to an innocent promisee. Students often mix up the first two. The first is about the agreement at the moment it is made. The second is about the contract afterwards.

Step 2: first paragraph, an act impossible in itself

An agreement to do an act impossible in itself is void from the beginning. There is nothing to enforce, because no valid contract ever arose.

Example. Rohan agrees with Seema to bring a dead person back to life for Rs 1 lakh. The act is impossible in itself, so the agreement is void (section 56, illustration (a) gives a similar case, discovering treasure by magic).

An act is impossible in itself when no one can do it. If the act is possible but this promisor cannot do it, for example because he lacks the money, the agreement is not void. His failure is a breach.

Step 3: second paragraph, supervening impossibility

Five conditions must be met.

A valid contract was made and could be performed when made.
An event happens afterwards.
The event makes performance impossible or unlawful, or destroys the object of the contract.
The promisor could not prevent the event, and it did not come from his own act or default.
The contract does not already deal with the event.

The contract becomes void when the event happens. No one has to choose. The discharge is automatic. It covers both parties from that moment.

Step 4: how the Indian rule grew

English law began with Taylor v. Caldwell (1863). The court read an implied condition into the contract that the hall would continue to exist. This is the implied term theory. Krell v. Henry (1903) extended the idea to a contract whose basis was an event that did not happen. A room was hired to watch a coronation procession, and the procession was cancelled.

The Indian Supreme Court took a different path in Satyabrata Ghose (1954). It held that section 56 is a complete rule of Indian law, and courts apply its words, not the English implied term theory. It also held that "impossible" is not limited to physical or literal impossibility. Performance can be impossible when it becomes impracticable and useless for the object the parties had in view. A temporary hindrance, with no fixed time for performance, did not frustrate the contract in that case.

Step 5: the grounds on which the doctrine applies

Destruction of the subject matter. The thing needed for performance ceases to exist, as in Taylor v. Caldwell.
Failure of the foundation event. The event on which the contract rested does not take place, as in Krell v. Henry.
Death or incapacity. A party to a contract that needs his personal skill dies or falls ill (illustrations (b) and (e)).
Change of law or government order. The act becomes unlawful after the contract is made (section 56, "unlawful").
Outbreak of war. Performance becomes illegal or impossible by war (illustration (d)).

Example. Tara books a banquet hall for her wedding on 15 December and pays Rs 50,000 in advance. On 1 December an accidental fire destroys the hall. Neither party is at fault. The contract becomes void. The owner must refund the Rs 50,000 (section 65).

Step 6: what is not frustration

Higher cost or hardship. A contract is not frustrated because it has become more onerous. In Alopi Parshad v. Union of India, the Supreme Court held that an abnormal price rise does not by itself end the bargain. In Davis Contractors v. Fareham UDC (1956), the House of Lords refused to excuse builders whose job took 22 months instead of eight and cost far more.
A longer route. In Tsakiroglou v. Noblee Thorl (1961), the closure of the Suez canal made shipping around the Cape about three times the distance, with double the freight. The contract was not frustrated.
A temporary hindrance. Satyabrata Ghose held that a temporary wartime requisition, with no fixed time for performance, did not frustrate the contract.
Self-induced impossibility. A party cannot rely on an event he caused himself.
Risk allocated by the contract. If the contract has a clause covering the event, the clause governs. A force majeure clause falls under section 32. Frustration outside the contract falls under section 56 (Energy Watchdog, para 32).

Example. A power generator wins a bid to supply electricity at a fixed tariff. The price of imported coal then rises sharply. The Supreme Court in Energy Watchdog (2017) held that a coal price rise is neither frustration nor force majeure. The generator took that risk when it bid.

Step 7: the effect of frustration

The contract becomes void when the act becomes impossible or unlawful. Both parties are discharged from further performance. Anything already received must be restored under section 65. Section 65, illustration (d), shows the point. A singer who is too ill to sing refunds the advance. She is not liable for the promoter's lost profits.

Step 8: third paragraph, compensation

The third paragraph protects an innocent promisee. A promisor who knew, or with reasonable diligence might have known, that the act was impossible or unlawful must compensate a promisee who did not know. In illustration (c), a man who contracts to marry while already married, and forbidden by his law to have two wives, must compensate the woman for her loss.

Step 9: Covid-19 and frustration

The pandemic did not frustrate contracts automatically. The court looks at the contract, its dates and its clauses. It asks whether the lockdown really caused the non-performance. In Halliburton v. Vedanta, the Delhi High Court first treated the lockdown as prima facie force majeure on 20 April 2020 and restrained encashment of bank guarantees. On 29 May 2020 it vacated that order. The contractor had been in breach since September 2019, before the pandemic. It held that a pandemic cannot excuse non-performance of deadlines that ended before it began, and that a force majeure clause is read narrowly. In Standard Retail v. G.S. Global (Bombay High Court, 8 April 2020), the court refused to stop the encashment of letters of credit, which are independent of the sale contract.

Example. A caterer's wedding booking for 20 April 2020 was cancelled by the lockdown. The event could not lawfully take place. The contract became void on the day the lockdown made it unlawful. The advance must be refunded. A caterer who was already months behind on another job before the lockdown cannot blame the pandemic for that earlier delay.

Section 56 at a glance

Paragraph	Situation	Effect	Illustration
First	The act is impossible in itself when the agreement is made	The agreement is void	(a) treasure by magic
Second	The act becomes impossible or unlawful after the contract, by an event the promisor could not prevent	The contract becomes void when the event happens. Advantages are restored (section 65)	(b) madness; (d) war; (e) illness
Third	The promisor knew, or might have known, of the impossibility. The promisee did not	The promisor compensates the promisee	(c) marriage while already married

Don't confuse: frustration, force majeure and breach

All three explain why a promise was not kept. They have different sources and different results.

Point	Frustration	Force majeure	Breach
Source	Section 56, by operation of law	A clause in the contract (section 32)	The promisor's own default
Effect	The contract becomes void automatically	As the clause provides	The other party may end the contract and claim damages
Choice	No one chooses	Depends on the clause, which often requires notice	The innocent party chooses

Inside the idea. A concert is booked in a stadium. The government bans all large gatherings before the date. The act has become unlawful. The contract is void under section 56.

Just outside it. A supplier finds his raw material has become twice as costly. He can still deliver, only at a loss. This is not frustration. If he refuses to deliver, he commits a breach.

Common mistakes

Writing that "impossible" means only physical impossibility. Satyabrata Ghose says it can include impracticable and useless performance.
Saying a rise in cost or a bad bargain frustrates a contract. It does not.
Saying a party must choose to end a frustrated contract. Section 56 makes it void automatically.
Citing Taylor v. Caldwell as the source of Indian law. The source is section 56, as Satyabrata Ghose explains.
Forgetting to order the refund of advances under section 65.

Apply it

Problem 1

X agrees to let his hall to Y for a public entertainment on 1 August 2014. On 20 July 2014 the hall is destroyed by fire. What are the rights of X and Y?

Issue. Is the contract discharged, and who bears the loss?

Rule. A contract to do an act that afterwards becomes impossible, by an event the promisor could not prevent, becomes void when the act becomes impossible (section 56). Advantages received must be restored (section 65). Taylor v. Caldwell is the model case.

Application. The hall was essential to the contract. Its destruction made performance impossible. The facts give no sign that X caused the fire.

Conclusion. The contract became void on 20 July 2014. X is not liable in damages and Y cannot claim the profits he hoped to make. Y may recover any advance paid. If X's negligence caused the fire, X cannot rely on the doctrine.

Problem 2

Sudheer agrees to sell Vasu the entire crop of oranges in his orchard. A sudden frost destroys the crop. Sudheer claims he is discharged. Advise Vasu.

Issue. Does the destruction of the crop discharge the contract?

Rule. A contract to do an act that becomes impossible without the promisor's fault becomes void (section 56). The same principle appears in section 7 of the Sale of Goods Act, 1930, for specific goods that perish before the risk passes.

Application. The contract was for the crop of one orchard. When the crop was destroyed, delivery became impossible. A frost is an event Sudheer could not prevent.

Conclusion. The contract is void. Vasu cannot claim damages and may recover any advance paid (section 65). The result would differ if Sudheer had promised a quantity of oranges from any source, because that performance would remain possible.

Leading case laws

Taylor v. Caldwell (1863)
Facts. Caldwell agreed to let the Surrey Gardens and Music Hall to Taylor on four days in 1861 for concerts, at £100 a day. The hall burned down by accident on 11 June 1861, before the first day.

Principle. A contract that depends on the continued existence of a thing carries an implied condition that both parties are excused if the thing perishes without their fault.

Why it matters. It is the origin of the doctrine.
Krell v. Henry (1903)
Facts. Krell let a flat in Pall Mall to Henry for 26 and 27 June 1902, the days of the planned coronation processions of Edward VII. The contract did not mention the coronation. The processions were cancelled when the King fell ill. Henry refused to pay the balance.

Principle. The Court of Appeal, [1903] 2 KB 740, held that the contract was frustrated, because the processions were the foundation of the contract.

Why it matters. It shows frustration where the purpose fails and the thing still exists.
Satyabrata Ghose v. Mugneeram Bangur & Co. (1954)
Facts. A land company sold building plots on a promise to build roads and drains. The Government requisitioned part of the land during the Second World War. The company said the contract was frustrated.

Principle. Section 56 is a complete Indian rule. "Impossible" is wider than physical impossibility. The requisition was temporary and no time was fixed for performance, so the contract was not frustrated. AIR 1954 SC 44.

Why it matters. It is the leading Indian authority on section 56.
Alopi Parshad and Sons Ltd. v. Union of India (1960)
Facts. A contractor who had agreed to supply goods at fixed rates claimed different rates after prices rose abnormally. The Supreme Court, AIR 1960 SC 588, refused.

Principle. A party cannot ignore the express terms and claim other rates on a vague plea of equity. An abnormal price rise does not by itself end the bargain. Performance is not discharged because it becomes onerous.

Why it matters. It is the standard case for the rule that hardship is not impossibility.
Davis Contractors Ltd. v. Fareham UDC (1956)
Facts. Builders agreed to build 78 houses in eight months for £92,425. Shortages of labour and materials made the job take 22 months and cost £115,223. They argued frustration and claimed a reasonable sum.

Principle. The House of Lords, [1956] AC 696, held that the contract was not frustrated. An unexpected turn of events that makes a contract more onerous is not a ground to relieve the contractor.

Why it matters. It supplies the "radically different" test.
Energy Watchdog v. Central Electricity Regulatory Commission (2017)
Facts. Power generators won competitive bids to supply electricity at fixed tariffs. Indonesian coal prices rose and they asked for relief on grounds of force majeure and change in law. (2017) 14 SCC 80.

Principle. The Supreme Court held that a coal price rise is neither frustration nor force majeure. The Court said that "an unexpected rise in the price of coal will not absolve the generating companies from performing their part of the contract" (para 40). Frustration is applied within narrow limits (para 37).

Why it matters. It is the latest Supreme Court statement of the narrow limits of section 56.
Halliburton Offshore Services Inc. v. Vedanta Ltd. (2020)
Facts. A contractor invoked the Covid-19 lockdown as force majeure and sought to stop encashment of bank guarantees. The Delhi High Court (C. Hari Shankar J.) granted an interim injunction on 20 April 2020. Prathiba M. Singh J. vacated it, with modifications, on 29 May 2020.

Principle. The pandemic cannot excuse non-performance of deadlines that ended before it began. A force majeure clause is read narrowly. A bank guarantee is independent of the underlying contract.

Why it matters. It shows that Covid-19 is not an automatic ground of frustration.

How to write this answer in the exam

5-mark answer

State section 56 and its three paragraphs in one line each.
Define frustration: a later event makes performance impossible or unlawful.
State the effect: the contract becomes void, and advantages are restored (section 65).
Cite Taylor v. Caldwell and give one example.

10-mark answer

Meaning, the maxim and the reason for the doctrine.
Section 56, paragraph by paragraph, with illustrations.
Taylor v. Caldwell and Krell v. Henry, then Satyabrata Ghose on the Indian rule.
The grounds: destruction, failure of foundation, death or incapacity, change of law, war.
What is not frustration: hardship, Alopi Parshad, Davis Contractors, Energy Watchdog.
Effect: sections 56 and 65. Close with a short note on Covid-19 and force majeure.

Key points to remember

Section 56: an act impossible in itself makes the agreement void. A later impossibility or illegality makes the contract void when it happens.
Frustration is automatic. No one chooses.
Satyabrata Ghose: section 56 is a complete Indian rule, and "impossible" includes impracticable and useless performance.
Grounds: destruction of the subject matter, failure of the foundation event, death or incapacity, change of law, war.
Not frustration: higher cost, delay, a temporary hindrance, self-induced impossibility, risk allocated by the contract.
Effect: both parties are discharged and advantages are restored (section 65).
The third paragraph gives compensation to a promisee who did not know of the impossibility.
Covid-19 is not an automatic ground. Courts look at the contract and the real cause.

Quick self-test

1. What are the three paragraphs of section 56?

An agreement to do an act impossible in itself is void. A contract to do an act that later becomes impossible or unlawful becomes void when it happens. A promisor who knew of the impossibility must compensate a promisee who did not.

2. Does a sharp rise in cost frustrate a contract?

No. Hardship or a bad bargain is not impossibility (Alopi Parshad; Energy Watchdog).

3. What follows when a contract is frustrated?

It becomes void when the act becomes impossible or unlawful. Each party must restore any advantage received under section 65.