1. Reference In The Indian Contracts Acta. Doctrine of Initial Impossibility-
Section 56 first lays down the
simple principle that an agreement to do an act impossible in itself is void.
For example, an agreement to discover a treasure by magic, being impossible of
performance, is void.
b. Doctrine of Subsequent Impossibility-
The second paragraph of Section 56
lays down the effect of subsequent impossibility of performance. Sometimes the
performance of a contract is quite possible when it is made by the parties. But
some event subsequently happens which renders its renders its performance
impossible or unlawful. In either case the contract becomes void. Where, for
example after making a contract of marriage, one of the parties goes mad, or
where the contract is made for the import of goods and the import is thereafter
forbidden by the Government, or where the singer contracts to sing and becomes
too ill to do so, the contract in each case becomes void.
Section 56 of the Indian Contract Act- Agreement to do impossible act-An
agreement to an act impossible in itself is void.
Contract to do act afterwards becoming impossible or unlawful-A contract to do
an act which, after the contract is made, becomes impossible or, by reason of
some event which the promisor could not prevent, unlawful, becomes void when the
act becomes impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or
unlawful-Where one person has promised to do something which he knew or with
reasonable diligence, might have known, and which the promise did not know, to
be impossible or unlawful, such promisor must make compensation to such promise
for any loss which such promise sustains through the non-performance of the
2. Frustration of Contract
As described in the Law Reform (Frustrated Contracts) Act 1943,of the United
Kingdom. A contract may be frustrated where there exists a change in
circumstances, after the contract was made, which is not the fault of either of
the parties, which renders the contract either impossible to perform or deprives
the contract of its commercial purpose. Where a contract is found to be
frustrated, each party is discharged from future obligations under the contract
and neither party may sue for breach. The compensation of the loss has also to
be described by such contract. In the case of Taylor v/s Caldwell
performance of the contract becomes physically impossible because of the
disappearance of the subject-matter. But the principle is not confined to
physical impossibilities. It extends also to cases where the performance of the
contract is physically impossible, but the object the parties had in mind has
failed to materialize. The well-known case of Krell v. Henry
one which illustrates this.
Thus the doctrine of frustration comes into play in two types of situations-
First: where the performance is physically cut off and second: where the object
The Supreme Court of India has held that Section 56 will apply in both kinds of
Supreme Court in the case of Satyabrata Ghose v. Mugneeram Bangur & Co
“This much is clear that the word ‘impossible’ has not been used here in the
sense of physical or literal impossibility. The performance of the act may not
be literally impossible but it may be impracticable and useless from the point
of view of the object and purpose which the parties had in view; and if an
untoward event or change of circumstances totally upsets the very foundation
upon which the parties rested their bargain, it can very well be said that the
promisor finds it impossible to do the act which he promises to do.”
3. Specific Grounds of Frustration The principle of frustration of contract, or of impossibility of
performance is applicable to a great variety of contracts. It is, therefore, not
possible to lay down an exhaustive list of situations in which the doctrine is
going to be applied so as to excuse performance. The law upon the matter is
undoubtedly in process of evolution
.Yet the following grounds of
frustration have become well- established.
a. Destruction of the subject matter-
The doctrine of impossibilities
applies with full force “where the actual and specific subject-matter of the
contracts has ceased to exist”. A decision under Section 56 is that of the
Madras High Court in V.L. Narasu v. P.S.V.Iyer
where a contract to exhibit a
film in a cinema hall was held to have become impossible of performance when on
account of heavy rains the rear wall of the hall collapsed killing three persons
and its license was cancelled until the building was reconstructed to the
satisfaction of the chief engineer. The owner was under no liability to
reconstruct and it took him some time, by that time the film would have lost its
b. Change of circumstances-
A contract will frustrate “where
circumstances arise which make the performance of the contract impossible in the
manner and at the time contemplated. Just Kapur of the Punjab and Haryana High
Court inPameshwari Das Mehra v. Ram Chand Om Prakash
 explained the principle
thus: It is clear that if there is entirely unanticipated change of
circumstances the question will have to be considered whetherthis change of
circumstances has affected the performance of the contract to such an extent as
to make it virtually impossible or extremely difficult or hazardous. If that be
the case, the change of circumstances not having been brought about by the fault
of either party, the courts will not enforce the contract.
c. Non-occurrence of contemplated events-
Sometimes the performance of a
contract remains entirely possible, but owing to the non-occurrence of an event
contemplated by both parties as the reason for the contract, the value of the
performance is destroyed. In the case of Herne Bay Steam Boat Co. v.
which also arose from the postponement of the coronation. The Royal
Naval Review was proposed to be held on the occasion. The defendant chartered a
steamboat for two to take out a party of paying passengers for the purpose of
viewing the naval review and for a day’s cruise around the fleet. But the review
was cancelled and the defendant had no use of ship. Yet he was held liable to
pay the unpaid balance of the hire less the profit which the plaintiff had made
by the use of ship in the ordinary course.
d. Death or incapacity of the party-
A party to a contract is excused from
performance if it depends upon the existence of a given person, if that person
or becomes too ill to perform. Thus, where the nature or terms of a contract
require personal performance by the promisor, his death or incapacity puts an
end to the contract. Robinson v. Davison
is the well-known authority.
There was a contract between the plaintiff and defendant’s wife, who
was an eminent pianist that she should play the piano at a concert to be given
by the plaintiff on a specified day. On the morning of the day in question she
became too ill to attend the concert. The concert had to be postponed and the
plaintiff lost a sum of money.
The plaintiff’s action for breach of contract failed. The court said
that under the circumstances she was not merely excused from playing, but she
also not at liberty to play, if she was unfit to do so. The contract was clearly
subject to her well-being enough to perform: “The whole contract clearly subject
to the assumptions of the continuance of life, and on the conditions which
existed at the time. That assumption is made by both; it is really the
foundation fails, the whole contract must fail. Here the foundation was wanting
for there was on Mrs. Davison’s part an entire and total incapacity to do the
e. Government, administration or legislation intervention-
A contract will
be dissolved when legislative or “administrative intervention has so directly
operated upon the fulfillment of the contract for a specific work as to transform
the contemplated conditions for a specific work as to transform the contemplated
conditions of performance.” Thus, where a vendor of land could not execute the
sale-deed because he ceased to be the owner by operation of law, it was held
that contract had become impossible of performance.The effect of an
administrative intervention has to be viewed in the light of the terms of the
contract, and ,if the terms show that the parties have undertaken an absolute
obligation regardless of administrative changes, they cannot be discharged. This
has been held by the Supreme Court in Naihati Jute Mills Ltd v. Khyaliram
.There was an agreement to purchase raw jute from the East
The buyer was to supply the import licence within November, failing
which it was to be supplied within December at the pain of a little more price
and if he failed in December he was to pay the difference between the contract
and market prices. The buyer applied for a licence which was refused because he
had stock in his mill which was sufficient for two months. He applied again. He
was advised this time that the rules had been changed and to obtain a licence he
must show that he had used an equal quantity of Indian jute. Thus the buyer
failed to supply the licence and was sued for breach. He pleaded frustration
caused by the change in Government policy. But he was held liable Just. Shelat
pointed out that if the Government had completely forbidden imports, Section 56
would have applied. But the policy of government was that the licensing
authority would scrutinise the case of the Government was that the licensing
authority would scrutinize the case of each applicant on its own merit.
f. Intervention of war-Intervention of war or warlike
conditions in the performance of a contract has often created difficult
questions. The closure of the Suez Canal following the Anglo-French war with
Egypt, for instance, interrupted the performance of many contracts. One such
case is Tsakiroglou & Co Ltd v Noblee Thorl G m b H. The appellants
agreed to sell to the respondents three hundred tons of Sudan groundnuts c.i.f.
Hamburg. The usual and normal route at the date of the contract was via Suez
Canal. Shipment was to be in November/December 1956, but on November 2, 1956,
the canal was closed to traffic and it was not reopened until the following
April. It is stated that the appellants could have transported the goods via the
Cape of Good Hope.
The appellants refused to ship goods via the Cape. The question now is whether
by reason of the closing of the Suez route, the contract had been ended by
frustration. The appellants' argument was that it was an implied term of the
contract that shipment should be via Suez. But it was held that such a term
could not be implied. The customary or usual route via the Suez Canal being
closed, the appellants were bound [by the Sale of Goods Act, 1893, 32(2)] to
ship the groundnuts by a reasonable and practical route and, though the
appellants might be put to greater expense by shipping the groundnuts via the
Cape of Good Hope, that did not render the contract fundamentally or radically
different, and there was not, therefore, frustration of the contract. If the
intervention of war is due to the delay caused by the negligence of a party, the
principle of frustration cannot be relied upon. If there are more than one ways
of performing a contract and the war cuts off only one of them, the party is
still bound to perform by the other way, however inconvenient or expensive.
g. Application of leases-In India the question was
considered by the Supreme Court inRaja Dhruv Dev Chand v Raja Harmohinder
Singhwhere SHAH J at once observed that the courts in India have
generally taken the view that Section 56 of the Contract Act is not applicable
when the rights and obligations of the parties arise under a transfer of
property under a lease.It was one of the cases arising out of the partition of
the country into India and Pakistan. The lease in question was that of an
agricultural land for one year only. The rent was paid and the lessee was given
possession. Before the land could be exploited for any crop, came partition
which left the land in Pakistan and the parties migrated to India. The action
was to recover the rent paid. But no such recovery was allowed.
SHAH J pointed out that completed transfers are completely outside the scope of
Section 56. In a case before the Allahabad High Court, the shops of premises
which were leased out collapsed owing to their dilapidated condition and heavy
rain, requiring new construction, which was not taken to be a frustration of the
lease. Where a shop held under a lease was demolished by the Municipal
Corporation, it was the lessee who was held to be entitled to the vacant site as
also the materials recovered from the debris and he was entitled to be restored
to possession for that purpose as against the lessor who had evicted him.
other hand, where on account of an event beyond the parties' control, the lessor
is not able to transfer possession to the lessee; the lessee would be entitled
to take back his rent. Under a lease of land there is a transfer of right to
enjoy that land. If any material part of the property be wholly destroyed or
rendered substantially and permanently unfit for the purpose for which it was
let out, because of fire, tempest, floods, violence of any army or a mob, or
other irresistible force, the lease may at the option of the lessee be avoided.
This rule is incorporated in Section 108(c) of the Transfer of Property Act.
Where the property leased is not destroyed or rendered substantially and
permanently unfit, the lessee cannot avoid the lease because he does not or is
unable to use the land for purposes for which it is let out to him. In the
subsequent case of Sushila Devi v Hari Singhthe Supreme Court held
that an agreement of lease ended by frustration where before completing it the
parties had to run away and could not go to Pakistan to give or take possession.
The Jammu and Kashmir High Court allowed inHari Singh v DewaniVidyawatithe
recovery of rent paid in advance under a lease which could not be completed on
account of partition. The recovery was allowed under Section 65 as benefits
received under a contract which became void.
4. Effects of Frustrationa. Frustration should not be self-induced-
Explaining the principle that
frustration should not be self-induced, Lord WRIGHT said in Maritime National
Fish Ltd v Ocean Trawlers Ltd
, that the essence of 'frustration' is that
it should not be due to the act or election of the parties. Frustration should
arise without blame or fault on either side. Reliance cannot be placed on a
self-induced frustration. The facts were: The appellants hired the respondents'
trawler, called 'the St Cuthberf to be employed in fishing industry only. Both
parties knew that the trawler could be used for that purpose only under a
license from the Canadian Government. The appellants were using five trawlers
and, therefore, applied for five licenses. Only three were granted and the
Government asked the appellants to name the three trawlers and they named
trawlers other than the St Cuthbert. They then repudiated the charter and
pleaded frustration in response to the respondents' action for the hire.
The Judicial Committee of the Privy Council held thatthe frustration in this
case was the result of the appellants' own choice of excluding the respondents'
ship from the license and, therefore, they were not discharged from the
contract. In another similar case, the contract was to export 1500 tons of sugar
beet pulp pellets with a further option for the same quantity. The sellers
obtained an export license for 3000. They also contracted with another buyer to
supply him 1500. But the Government refused to grant any further license.
shipped the whole agreed quantity to the first buyer. They were now left with
the export license for 1500 only, but were under two obligations, one to supply
1500 to the first buyer under the option given to him and other under the
contract with the second buyer for the same quantity. As a face-saving device
they apportioned the supply between the two buyers giving about half to either.
The second buyer sued for breach of contract. The suppliers pleaded frustration.
They were held liable. The Court of Appeal found no legal authority justifying
the proposition that where a seller has a legal commitment to A and a non-legal
commitment to B and he can honour the obligation to A or to B but not to both,
he is justified in partially honouring both obligations.
The court referred to the principle stated in the American Uniform Commercial
Code that in such a situation the seller may allocate supplies in any manner
which is reasonable and fair, but found no basis for importing the principle
into English law. There is, however, an English authority to the effect that if
the seller had been under a legal duty, he would have been justified in making
fair apportionment. The court said that when a supplier has many contracts to
fulfill, but only has enough of the goods to fulfill one of them, then, if he
reasonably appropriates what he has to that one, he can rely on force maejeure
as to others.
Thus there is no principle of law preventing one party to a
contract taking advantage of its own acts to defeat the other's rights unless
the party is in breach of duty in so acting. Thus where the defendant company
having the right to do so and lawfully exercising that right, sold its
subsidiary with the result that the employees’ stock options lapsed, the
defendant was held not liable for the lapse because it was under no duty not to
sell its subsidiary.
b. Frustration operates automatically-
Frustration operates automatically
to discharge the contract "irrespective of the individuals concerned, their
temperaments and failings, their interest and circumstances'. "The legal effect
of frustration does not depend on their intention or their opinions, or even
knowledge, as to the event." This is particularly true of Indian law as Section
56 of the Contract Act lays down a rule of positive law and does not leave the
matter to be determined according to the intention of the parties. A subsequent
case, however, shows that in certain circumstances frustration may be waived by
one party and then the other will be bound by the contract.
In H.R.&. S Sainsbury Ltd v Street
: There was the sale of 275 tons
(5% more or less) of feed barley to be grown on seller's land. The crop amounted
to only 140 tons. The seller resold it to another and contended that he had the
right to do so because the contract had ended by frustration. But he was held
liable for breach of contract. There was frustration only to the extent of crop
failure. The buyer could waive it and claim delivery of whatever little crop the
seller's land had produced. The Supreme Court has laid down that frustration
puts an end to the liability to perform the contract. It does not exterminate
the contract for all purposes. For example, whether the doctrine of frustration
would apply or not has to be decided within the framework of the contract and,
if the contract contains an arbitration clause, the arbitrator could decide the
matter of frustration.
c. Adjustment of Rights (Restitution)-
The rights of the parties are
adjusted under Section 65.Obligation of person who has received advantage under
void agreement or contract that becomes void.- When an agreement is discovered
to be void, or when a contract becomes void, any person who has received any
advantage under such agreement or contract is bound to restore it, or to make
compensation to it, to the person from whom he received it.
a. Discovered to be void
.-The first part of the section is concerned with
an agreement which never amounted to a contract, it being void ab initio. But
the parties discovered this at a later stage. "The word 'discovered' connotes
the pre-existence of that which is discovered." This will cover cases of
"initial mistake". Where, for example, money is paid for the sale of goods,
which, unknown to the parties, have already perished at the time, the money is
refundable. The principle will apply whether the agreement is void by reason of
law or by reason of fact.
Thus, for example, where a minor gave a shop under a partnership to the
defendant, the agreement being void, it was held that he could recover back the
shop. Consideration given on a promissory note which was not enforceable for
inadequacy of stamps, was held to be refundable. Money paid under a contract
with a municipality not executed in the manner laid down by the Municipal Act,
was held to be refundable.
Payment made in advance to a contractor under a contract which is not in
accordance with Article 299(1) of the Constitution relating to Government
contracts has been allowed to be recovered back under this section. Where a
Government officer purchased goods on credit without having the authority to do
so and they were received for official purposes, the price was held to be
Payment received by a person for purported sale of land which he had no right to
sell, had to be returned by him to the other party. Taxes realized by a
contractor under the authority of State were held to be refundable to the
taxpayers when it turned out that the levy itself was invalid. Money paid to a
person for purchasing his right to reversion, which is not transferable, being
merely an expectancy was held by the Privy Council to be refundable with 6%
interest from the date of suit. The principle has also been held to apply to
cases where a contract is void by reason of "unlawful object", but the parties
were not aware of it.
Where the Orissa High Court found that the plaintiff who advanced money to the
defendant for supply of paddy was not aware on the date of the agreement that it
was in violation of law, his suit for refund of money was allowed. A lady
Advocate acting as an Assistant District Counsel on the request of the District
Magistrate was allowed to recover her remuneration for the working period even
if the appointment was discovered to be void under Section 24(2) of the Criminal
Procedure Code, 1973.
b. Quantum merit claims.-
Claims under the well-known English law
doctrine of quantum merit have been allowed by the courts under this section.
The Supreme Court observed inState of Madras v Dunkerley & Co
claim for quantum merit is a claim for damages for breach of contract. The value
of the material used or supplied is a factor which furnishes a basis for
assessing the amount of compensation. The claim is not for price of goods sold
and delivered but for damages. That is also the position under Section 65.
In another case reasonable compensation was awarded on the implication of a
contract. It will not displace an express stipulation on the point. In a
subsequent case, the Supreme Court explained the requirements of the claim. The
original contract must be so discharged by the opposite party that the plaintiff
is entitled to treat himself as free from the obligation of further performance
and he must have elected to do so. The remedy is not available to the party who
breaks the contract even though he might have partly performed it.
The remedy is restitutory, it is a recompense for the value of the work done by
the plaintiff in order to restore him to the position which he would have been
in if the contract had never been entered into. In this respect it is different
from a claim for damages which is a compensatory remedy.
The court accordingly did not allow the claim of a contractor for extra payment
on the ground that he had to procure the raw material from a longer distance
than that represented in the tender documents. The material was in fact
available within the stated distance, but its removal required permission of
Cantonment Authorities which the contractor could not manage to get. Explaining
the nature of justice that Section 65 strives for,
The Supreme Court has observed:
We do not have the slightest doubt that net profits realized by the company
as result of its various business activities can never be the measure of
compensation to be awarded under Section 65. It is not as if Section 65 works in
one direction only. If one party to the contract is asked to disgorge the
advantage received by him under a void contract, the other party may ask him to
restore the advantage received by him. The restoration of the advantage and the
payment of compensation have necessarily to be mutual.
InGovindram Seksaria v Edward Radbore
the Privy Council pointed out
that the result of Section 65 was that each of the parties became bound to
restore to the other any advantage which the restoring party had received under
the contract. As a result of the contract being void, the State could at the
most recover from the contractor the value of the rough stone excavated from the
quarries. But then it would have to make good to the company the expenditure
incurred by it in quarrying operations and extraction of the rough stone. The
contract was for the grant of a quarry. It was found to be mistaken about the
income tax laws prevailing in the area.
c. Becomes void
.-The second type of situation covered by Section 65 is
where a valid contract is made in the beginning, but it subsequently becomes
either unlawful or impossible of performance. Any benefits which have passed
under the contract from one party to the other must be restored. This is subject
to the expenses which have already been incurred by the other party in the
performance of the contract.
English Law The principles of English law before the Law Reform (Frustrated
Contracts) Act, 1943, were those laid down in the two coronation cases, one of
them is Krell v Henry
where the court held that the rent which had been
paid before the contract to hire premises became void by reason of the
postponement of the procession was not refundable and the outstanding rent was
not recoverable. The courts left the parties where they were.
They also did not like to disturb the rights which the parties had acquired
before the contract became void of this the illustration is Chandler v
. The plaintiff sued for refund of the rent which he had paid in
advance and the landlord counter-claimed for the balance which was due, ROMER LJ
stated the principle and said Applying this to the facts here, as soon as it was
ascertained that the procession, through no fault of either of the parties,
could not take place, they were immediately free from any subsequent obligation
under the contract, but the contract could not be considered as rescinded ah
That being so, many legal rights previously accrued to either of the parties
remained, and could not be disturbed, and one of those rights was the right of
the defendant to be paid £ 141.15 s. The hardship that this principle is likely
to cause was to a certain extent mitigated by the House of Lords inFibrosa
Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd.
Lord RUSSELL OF
KlLLOWEN at once observed that Chandler v Webster
was wrongly decided.
Their Lordships accordingly allowed the £ 1,000 to be recovered which were paid
in advance for purchasing a machinery and the performance having been rendered
illegal by the intervention of war.
His Lordship continued : The money paid was recoverable, as having been paid
for a consideration which had failed. The rule that on frustration the loss lies
where it falls cannot apply in respect of the moneys paid in advance when the
consideration moving from the payee for the payment has wholly failed, so as to
deprive the payer of his right to recover moneys so paid as moneys received to
his use; but the rule will, unless altered by legislation, apply in all other
The expected legislation came within a year. Now the rights of
parties whose contract has ended by frustration are adjusted under the
provisions of the Law Reform (Frustrated Contracts) Act, 1943.
The main provisions of the Act are as follows
AH sums of money which have been paid under a frustrated contract shall be
refundable and those which are still payable cease to be payable. If any party
has incurred expenses before the time of discharge in the performance of the
contract, the court may, if it thinks just to do so, allow him to deduct such
expenses from the refundable deposit or allow him to recover. The same principle
will apply to any benefits received other than money. In estimating the amount
of expenses the court may take into account the reasonable overhead expenses and
the work or services personally performed by the party. Benefits received under
an insurance policy are not to be taken into account unless there is an express
obligation to insure.
5. Cases When Frustration Does Not Happen
There have been many instances when the contract has not been frustrated even
when it has fulfilled the conditions of a contract to be frustrated.
Those conditions are-
a. Difficulty in performance-
The House of Lords has held that where the
parties can still perform their main obligation despite the fact that the
subject-matter has gone out of their hands, frustration may not follow. There
occur situations when due to change in certain external circumstances the
contract becomes difficult to perform but it has still not become impossible to
perform. When due to rains the construction work was stopped for three days that
does not renders the contract difficult, it can still be performed and completed
before deadline by engaging more workers or increasing the hours of work.
b. Failure of third party-
Business contract or rather any contract
involves not just the contracting parties but rather many auxiliaries which work
in the background of those parties which are referred to as the third parties.
The contract of the main contracting parties depends on those third parties
which generally supply raw material to the contracting parties. Sometimes the
contract is not performed by the main contracting parties because of the fault
of those third parties, but that does not renders the contract as frustrated
because the contracting parties were not at fault.
Difference Between Impossibility And Frustration
Frustration or impracticability occurs when a performance would be deemed
impractical because of an unforeseen event. Impossibility occurs when a party is
not able to complete a contract because of an event that happens after the
contract is executed. The main difference is that frustration means a contract
cannot be performed because of an extreme burden to the contracting party, while
impossibility means the contract cannot physically be performed.
There are only certain events where frustration and impossibility can be
applied. Usually, these terms apply when there a risk involved in the
performance of a contract, making it impossible or frustrated through no fault
of the parties involved or the courts. When this occurs, the parties are
released from their obligation to perform the contract automatically.
 Taylor v. Caldwell,3 B&S 826: 122 ER 309.
 Krell v. Henry,(1903) 2 KB 740 (CA).
 Satyabharata Ghose v. Mugneeram Bangur,AIR (1954) SC 44.
 A.L. Corbin,Recent Developments in Contracts,(1937) 50 Harvard Law Review
 Ibid (2).
 V.L. Narasu v. P.S.V. IyerAIR 1953 Mad 300.
 Pameshwari Das Mehra v. Ram Chand Om PrakashAIR 1952 34,38.
 Herne Bay Steam Boat Co. Ltd. v. Hutton(1903) 2 KB 683 (CA).
 (1871) LR 6 Exch 269: 40 LJ Ex 172
 Rozan Mian v. Tahera Begum, (2007)12 SCC 175.
 Naihati Jute Mills Ltd. v. Khyaliram JagannathAIR 1968 SC 528; (1968) 1
 isTsakiroglou & Co Ltd v. Noblee Thorl G m b H1962 (AC) 63.
 Raja Dhruv Dev Chand v Raja Harmohinder Singh1968 AIR 1024, 1968 SCR (3)
 Sushila Devi v Hari Singh1971 AIR 1756, 1971 SCR 671.
 Hari Singh v DewaniVidyawatiAIR 1960 J&K 91.
 Maritime National Fish Ltd v Ocean Trawlers Ltd.AIR 1935 PC 128.
 H.R.&. S Sainsbury Ltd v Street[1970 H. No. 10887].
 State of Madras v Dunkerley & Co1958 AIR 560, 1959 SCR 379.
 Govindram Seksaria v Edward Radbore(1948) 50 BOMLR 561