GEETA INSTITUTE OF LAW, KARHANS

AFFILIATED TO KURUKSHETRA UNIVERSITY

(Assignment on “Section 56- impossibility of performance of contract”)

SUBMITTED TO: SUBMITTED BY:

Ms. Surbhi Muskan Kaushik

(ASSISTANT PROFESSOR) B.B.A.LL.B (Hons.)

5.1th Semester

1
 IMPOSSIBILITY OF PERFORMANCE AND
FRUSTRATION OF CONTRACT

Section 56 of the Indian Contract Act, 18721 talks about the impossibility of performance of
contract. The provisions contained in Section 56 are closely related with the English
“doctrine of frustration of contract.” The first paragraph of Section 56 lays down the
simple principle that "an agreement to do an act impossible in itself is void (initial
impossibility)." For example, an agreement to discover a treasure by magic, being impossible
of performance, is void [Illustration (a), Section 56]. The second paragraph lays down the
effect of subsequent impossibility of performance. By virtue of Section 56, paragraph 2, “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 (supervening impossibility).” For example, A and B
contract to marry each other and before the time fixed for the marriage, A goes mad. The
contract becomes void [Illustration (b), Section 56]. The third paragraph of Section 56 says
that if 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 b.
The Indian law on the impossibility of performance of contract is wider than the
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Section 56 of the Indian Contract Act, 1872: Agreement to do impossible act - An agreement to do 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 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.

Illustrations

(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 for the marriage, A goes mad. The contract becomes void.
(c) A contract to marry B, being already married to C and being forbidden by the law to which he is subject to practice
polygamy. A must make compensation to B for the loss caused to her by the non-performance of the promise.
(d) A contract to take in cargo for B at a foreign port. A's Government afterwards declares war against the country in which
the port is situated. The contract becomes void when war is declared.

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 English “doctrine of frustration” because it covers both the initial impossibility and
subsequent impossibility. On the other hand the “doctrine of frustration” applies where the
performance of the contract is initially possible, but it becomes frustrated due to some
extraordinary event. In fact, the frustration of contract is identical to the subsequent
impossibility mentioned under paragraph 2 of Section 56. This principle is not only confined
to the physical impossibilities. It extends to the cases where the performance of the contract
is physically possible, but the object of the parties had in mind has failed to materialized. In
Krell v. Henry2, a flat was hired only for viewing a coronation procession but the procession
having been cancelled due to King’s illness, it was held the object of the contract was
frustrated by the non-happening of the coronation.

SPECIFIC GROUNDS OF FRUSTRATION

There is not any exhaustive list of situations in which the doctrine is going to be applied. But,
the following grounds of frustration have become well established.

1. Destruction of Subject-Matter
The doctrine of impossibility applies with full force "where the actual and specific
subject-matter of the contract has ceased to exist". Taylor v. Caldwell3 is the best
example of this class. There, a promise to let out a music hall was held to have
frustrated on the destruction of the hall. Similarly, in Howell v. Coupland4 the
defendant contracted to sell a specified quantity of potatoes to be grown on his
farms, but failed to supply them as the crop was destroyed by a disease, it was held
that performance had become impossible.

2
(1903) 2 KB 740
3
(1863) 3 B&S 826
4
(1876) 1 QBD 258
3
 2. Unusual 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." This happens
when the change of circumstances has affected the performance of the contract to
such an extent as to make it virtually impossible or even extremely difficult or
hazardous.

The Supreme Court laid down this principle in Alopi Prashad v. Union of
India5. In this case, the plaintiffs were acting as the agents to the Government of
India for purchasing ghee for the use of army personnel. They were to be paid
on cost basis for different items of work involved. The performance was in
progress when the Second World War intervened and the rates fixed in peace
time were entirely superseded by the totally altered conditions obtaining in war
time. The agents demanded revision of rates but received no replies. They kept
up the supplies. The Government terminated the contract in 1945 and the agents
claimed payment on enhanced rates. They could not succeed. The contract was
held not frustrated.
In Tarapore & Co. v. Cochin Shipyard Ltd. 6, the Supreme Court observed that
“the law has to adapt itself to economic changes. Marginal price rise may be
ignored. But when prices escalate out of all proportion, then it cannot be said
that it could not be reasonably expected by the parties and make performance so
crushing to the contractor as to border virtually on impossibility, the law would
have to offer relief to the contractor in terms of price revision in such a
situation.”

3. Non-occurrence of Contemplated Event

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. Krell v. Henry7 involved a situation
of this kind. There, a contract to hire a room to view a proposed coronation procession

5
AIR 1960 SC 588
6
(1984)2 SCC 680
7
(1903) 2 KB 740
 was held to have frustrated when the procession was postponed. For this result to
follow it is necessary that the happening of the event should be the foundation of the
contract. This is shown by Berne Bay Steam Boat Co v. Hutton8 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 days "to take out a
party of paying passengers for the purpose of viewing the naval review and for a day's
cruise round the fleet". But the review was cancelled and the defendant had no use of
the 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 the ship in the ordinary course.

4. Death or Incapacity of Party

"A party to a contract is excused from performance if it depends upon the existence of
a given person, if that person perishes" or becomes too ill to perform. Robinson v.
Davison9 is the well-known illustration. There was a contract between the plaintiff and
the 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 informed the plaintiff that she was too ill to attend the concert. The court
said that the contract has become frustrated.

5. Government, administrative or legislative 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.
In Man Singh v. Khajan Singh10, a contract between certain parties for the sale
of the trees of a forest was discharged when the state of Rajasthan forbade the cutting
of trees in the area. In case an intervention is not of permanent character which does
not uproot the foundation of the contract, it will be having no such effect of
frustration. In the Satyabrata Ghose v. Mugneeram Bangur & Co.11, the construction
of housing colony was started by the defendant. The plaintiff paid the advance for the
8
(1903) 2 KB 683 (CA)
9
(1871) LR 6 Exch 269
10
AIR 1961Raj 277
11
AIR 1954 SC 44
 same purpose. The defendant asked for the balance of amount and comedian of
conveyance as the work was completed. Meanwhile, second World War began and the
Government requisitioned a considerable portion of the land for military purposes.
The company contended that the contract be cancelled by reason of the supervening
events, Mukherjee J., held that the contract was not frustrated. He observed:
"Undoubtedly the commencement of the work was delayed but was the delay
going to be so great and of such a character that it would totally upset the basis of
the bargain and commercial object which the parties had in view? The requisition
orders, it must be remembered, were, by their very nature, of a temporary
character and the requisitioning authority could, in law occupy the position of a
licensee in regard to the requisitioned property. The order might continue during
the whole period of the war and even for some time after that or it could have been
withdrawn before that was terminated. If there was a definite time limit agreed to by
the parties within which the construction work was to be finished, it could be said
with perfect propriety that delay for an indefinite period would make the
performance of the contract impossible within the specified time and this would
seriously affect the object and purpose for the venture. But where there is no time
limit whatsoever in the contract, nor even an understanding between the parties
could naturally anticipate restrictions of various kind which would make the carrying
out of these operations tardier and more difficult, than in times of peace, we do not
think that the order of requisition affected the fundamental basis upon which the
'agreement rested or struck at the roots of the adventure.”

If parties have undertaken the absolute liability in terms of contract, regardless

of executive changes, the parties cannot claim the liability to be discharged yet. In
Naihati Jute Mills Ltd. v. Khyaliram Jagamnath12, raw jute was to be imported from
East Pakistan. The Jute Mill undertook to procure the necessary licensee for importing
jute from Pakistan and to hand over the same to the importer. The Mill stipulated to pay
damages to the importer if it failed to procure the licensee on or before a particular date.
The Mill did not procure licence as a result of change in the policy of the Government
of issuing licensee for importing Jute. The Mill was held liable as the contention of
doctrine of frustration was rejected against the Mill because it took upon itself the
burden to pay damages if it fails to procure licensee from Jute Commissioner.

6. Intervention of War

War or War like situations has often raised difficult questions for the courts. In

12
AIR 1968, SC 522
 Tsakiroglou & Co. Ltd. v. Noblee Thorl G. m. b. H13, appellants had agreed to sell to
the respondents three hundred tons of groundnuts. The usual route at the date of the
contract was via Suez Canal. The shipment was to be in November/December, but due
to certain geopolitical development the canal was closed until April next year. It was
stated that the appellants could have shipped through the alternate route which was
Cape of Good Hope. Appellants refused to ship goods via Cape. The appellant’s
argument was that it was a tacit understanding between the parties in the contract that
the shipment should be via Suez. It was held that such an Understanding was wrong.
What the appellants could have done was shipped the shipment through Cape route,
and they were bound by law (Sale of Goods Act, 1893) to do this. Although this would
have been more expensive for the appellants, but it didn’t render the contract
fundamentally or radically different, hence there was no frustration of contract.

CASES NOT COVERED BY DOCTRINE OF FRUSTRATION

(a). Self-induced frustration

In Maritime National Fish Ltd. v. Ocean Trawlers Ltd.14, Lord WRIGHT said 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. In this case, the appellants hired the
respondents' trawler, called 'the St Cuth berf 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 that the 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
13
(1961) 2 All ER 179
14
AIR 1935 PC 128
 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.
They 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 Band he can honor the obligation to A or to B but not
to both, he is justified in partially honoring both obligations.

(b). Failure of one of the objects

When there are several purposes for which the contract is entered into, failure of one of
the objects does not terminate the contract. This principle was established in Herne Bay
Steam Boat Co. v. Hutton15. In this case, a ship was chartered by the defendant for two
days for the purpose of viewing the naval review and for a day’s cruise round the fleet, but
the review was cancelled. The defendant was held liable to pay the hire amount.

(c). Commercial Hardship or Difficulty

Commercial Hardship may make the performance unprofitable or more expensive or
dilatory, but it is not sufficient to excuse performance. In Ganga Saran v. Ram Charan
Gopal16, a contract was made for supplying certain belle’s of cloth manufactured by the
New Victoria Mills, Kanpur. The contract added: “We shall go on supplying goods to you
of the Victoria Mills as soon as they are supplied to us by the said mills. The mill
failed to supply goods to the sellers and, therefore, the sellers pleaded frustration. It was
held by the court that there is no frustration and the sellers are liable for simple breach of
contract.

15
(1903) 2 KB 683
16
AIR 1945 Mad 291
 (d). Frustration applies to executory contracts and not to executed contracts
In India the question was considered by the Supreme Court in Raja Dhruv Dev
Chand v. Raja Harmohinder Singh17 where 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. It has been held that if the transfer of lease had not been made complete, the
doctrine of frustration would apply.

In the subsequent case of Sushila Devi v. Hari Singh18 , the 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.

Conclusion

The doctrine of frustration, incorporated under Section 56 of the Indian Contract Act,
1872 provides a way out to the parties when the performance has become impossible,
owing to any supervening event, without their fault. English courts evolved various
theories to justify the application of the doctrine under certain circumstances, whereas
Indian Law has, by codifying this doctrine in Section 56, obviated the need for evolving
and applying theories to justify the application of the doctrine. Although, the vision of
the Indian legislature is wide and that is why it also included the instances of initial
impossibility under the preview of this doctrine. The provisions contained in Section
56 provide a complete set of the legal consequences of the performance of the
contract.

17
AIR 1968 1024
18
AIR 1971 SC 1756