Impossibility of Performance, and Frustration

In one line

Section 56 covers two different things in one section: a promise that was impossible from the start, which is void, and a promise that becomes impossible afterwards, which kills the contract from that moment.

In the words a student can write in an exam: section 56 of the Indian Contract Act 1872 provides that "An agreement to do an act impossible in itself is void"; that "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"; and that a promisor who knew, or with reasonable diligence might have known, of an impossibility or unlawfulness which the promisee did not know, must make compensation to the promisee for the loss sustained through the non performance.

Why the law discharges a contract nobody can perform

A contract is a promise the law will enforce. Enforcement means either compelling performance or making the promisor pay for not performing.

Where performance has become genuinely impossible through no one's fault, neither makes sense. Compelling the impossible is futile, and making a party pay for failing to do what nobody could do is punishment rather than compensation. The law's answer is to discharge both parties.

But the doctrine has to be kept narrow, and this is the part students underweight. Every contract allocates risk. A seller who agrees a fixed price is taking the risk that his costs rise; a builder who agrees a completion date is taking the risk that labour is short. If a party could escape whenever performance became difficult, expensive or unprofitable, the whole point of fixing terms in advance would be lost.

So section 56 discharges the contract only where performance becomes impossible or unlawful, and the courts have consistently refused to extend it to performance that has merely become onerous.

The provision itself

"Agreement to do impossible act. An agreement to do an act impossible in itself is void.

Contract to do an 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 promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise."