Discharge by Impossibility

Learn discharge by impossibility under Section 56 of the Indian Contract Act, 1872, with frustration of contract, examples and landmark cases.

Introduction

A contract creates legal obligations that the parties are expected to fulfil. However, circumstances may arise after a contract is made that make its performance impossible or unlawful. In such situations, the law may discharge the parties from their remaining contractual obligations. This is known as discharge of contract by impossibility of performance.

Discharge by impossibility is an important method of discharge under the Indian Contract Act, 1872. It recognises that parties cannot always be expected to perform a contract when an unforeseen event fundamentally prevents the performance contemplated by their agreement.

The principal statutory provision is Section 56 of the Indian Contract Act, 1872, which deals with agreements to do impossible acts, contracts that subsequently become impossible or unlawful, and compensation where a promisor undertakes an act that they knew or ought to have known was impossible or unlawful.

The doctrine of frustration is closely connected with this principle. However, not every unexpected event makes a contract impossible. Financial difficulty, increased costs or inconvenience ordinarily do not automatically discharge contractual obligations. The event must satisfy the applicable legal requirements.

For law students, the most important task is to understand Section 56, distinguish initial impossibility from supervening impossibility, and apply landmark Supreme Court decisions such as Satyabrata Ghose v. Mugneeram Bangur & Co. and Energy Watchdog v. Central Electricity Regulatory Commission.

Meaning of Discharge by Impossibility

Discharge by impossibility occurs when a contract cannot legally or practically be performed because the act promised was impossible from the beginning or becomes impossible or unlawful after the contract is made.

The doctrine is based on the principle that contractual obligations may cease where the law recognises that performance can no longer be required.

For example, A agrees to organise a concert at a particular venue. Before the event, the venue is permanently destroyed by an unforeseen natural disaster, and the contract cannot be performed according to its essential purpose. Depending on the contract and the circumstances, Section 56 or an applicable contractual provision may discharge the parties from their remaining obligations.

However, if the venue remains available but hiring it becomes more expensive, the contract does not automatically become impossible. The parties may still be required to perform according to their agreement.

Section 56 of the Indian Contract Act, 1872

Section 56 is titled “Agreement to do impossible act.” It addresses three important situations.

1. Initial Impossibility

The first paragraph of Section 56 provides that an agreement to do an act impossible in itself is void.

This applies where the promised act is inherently impossible when the agreement is made.

Example: A agrees with B to discover treasure through magic. The agreement is void because the promised act is impossible in itself.

The legal consequence is that the agreement does not create an enforceable obligation to perform the impossible act.

2. Supervening Impossibility or Illegality

The second paragraph of Section 56 provides that a contract to do an act becomes void when, after the contract is made, the act becomes impossible or becomes unlawful because of an event that the promisor could not prevent.

This is the principal provision governing discharge by supervening impossibility and the doctrine of frustration.

The impossibility must arise after the contract has been made. It may result from physical destruction, a change in law, the disappearance of an essential state of affairs or another event that makes the promised performance impossible or unlawful within the meaning of the section.

Example: A contracts to deliver a specific machine to B. Before delivery, the machine is destroyed by an unforeseen event, and the contract cannot be performed through an agreed or legally acceptable alternative. Depending on the terms of the contract and the circumstances, the obligation may be discharged under Section 56.

The mere fact that performance has become difficult or less profitable is not sufficient.

3. Compensation Where the Promisor Knew of the Impossibility

The third paragraph of Section 56 provides for compensation where a person promises to do something that they knew, or with reasonable diligence might have known, was impossible or unlawful, while the promisee did not know of that impossibility or illegality.

In such a case, the promisor must compensate the promisee for the loss sustained through non-performance.

Example: A promises to arrange a legally prohibited transaction, knowing that the transaction is unlawful, while B is unaware of the illegality. If the statutory conditions are satisfied, A may be liable to compensate B for the loss caused by the non-performance.

This rule is distinct from supervening impossibility. It concerns a promise that was already impossible or unlawful when made, but whose true position was known, or reasonably discoverable, to the promisor.

Doctrine of Frustration of Contract

The doctrine of frustration applies when a supervening event fundamentally changes the circumstances of a contract so that its contemplated performance becomes impossible or unlawful, or its essential foundation is destroyed within the meaning of the law.

In India, the doctrine is principally governed by Section 56 of the Indian Contract Act, 1872. It is not a free-standing power allowing courts to release parties whenever a contract becomes unfair or commercially unattractive.

A contract may be frustrated when, for example:

• The specific subject matter essential to performance is destroyed.
• A change in law makes the promised performance unlawful.
• An essential event or state of affairs that forms the foundation of the contract ceases to exist.
• Personal performance becomes impossible because the person required to perform dies or becomes incapacitated, where the contract depends on that person’s personal services.

Whether frustration applies depends on the contract, the nature of the event and the consequences for performance.

Meaning of “Impossible” Under Section 56

The word “impossible” does not mean only literal physical impossibility. In appropriate circumstances, performance may be practically impossible or useless in relation to the fundamental purpose of the agreement.

However, the threshold is substantial. An unexpected event must affect the contract in a way recognised by the law. A party cannot escape contractual obligations merely because performance has become inconvenient, expensive or less profitable.

The distinction was explained by the Supreme Court in Satyabrata Ghose v. Mugneeram Bangur & Co.

Essentials of Discharge by Impossibility

Existence of a Valid Contract

There must be a contract whose performance is affected by the alleged impossibility. Section 56 also deals with agreements that are impossible from the outset, but those agreements are void rather than discharged by a subsequent event.

Impossibility Must Arise or Become Relevant in the Legally Recognised Way

For supervening impossibility, the relevant event must occur after the contract is made and make the promised act impossible or unlawful within the meaning of Section 56.

If the act was impossible from the beginning, the first or third paragraph of Section 56 may be relevant instead.

The Event Must Have the Required Legal Effect

An unexpected event does not automatically frustrate a contract. It must prevent the contemplated performance or fundamentally undermine the basis of the bargain to the extent recognised by the law.

For example, a temporary disruption may not frustrate a long-term contract if performance can still be completed within the agreed framework.

The Promisor Must Not Rely Merely on Self-Induced Impossibility

A party cannot ordinarily rely on an impossibility that results from their own conduct or default as a basis for avoiding contractual responsibility.

The court examines the cause of the alleged impossibility and whether the party seeking to rely on Section 56 is legally entitled to do so.

Contractual Terms Must Be Examined

The contract may contain a force majeure clause or another provision that allocates the risk of specified events. In such cases, the court must first examine the contractual provision and determine its scope.

Section 32 may govern the effect of a contractual contingency, while Section 56 applies to supervening impossibility or illegality within its scope.

Situations in Which a Contract May Become Impossible

Destruction of the Subject Matter

Where a contract depends on a specific thing or place, its destruction may make performance impossible.

Example: A agrees to hire B a particular hall for a specific event. Before the event, the hall is destroyed by a fire, and no alternative arrangement is contemplated by the contract. Depending on the facts, the contract may be discharged if the destruction prevents the essential performance.

The outcome depends on whether the specific subject matter was essential and whether the contract provides for an alternative.

Change in Law

A contract may become impossible to perform lawfully if a subsequent change in law prohibits the promised act.

Example: A agrees to supply a product to B. After the contract is made, a valid legal prohibition makes the agreed supply unlawful. If the contract cannot lawfully be performed, Section 56 may apply.

The mere introduction of a regulatory requirement does not necessarily frustrate every affected contract. The legal effect of the change must be examined.

Death or Incapacity in Contracts Requiring Personal Performance

Some contracts depend on the personal skill, ability or qualifications of a particular person.

Example: A singer agrees to perform at a concert on a specified date but dies before the performance. Where the contract requires that singer’s personal performance, the obligation may be discharged because it can no longer be fulfilled.

The same principle may apply where the person becomes incapacitated in circumstances that make the promised personal service impossible.

Failure of an Essential State of Affairs

A contract may be frustrated where an essential state of affairs on which the agreement depends ceases to exist.

Example: A hires a venue specifically to watch a particular public event from it. If the event is cancelled and the contract’s essential purpose is thereby destroyed, the legal effect depends on whether that purpose formed the basis of the agreement and whether the contract allocates the risk of cancellation.

A party’s private motive is not automatically enough. The relevant purpose must be legally significant in the context of the contract.

Situations That Do Not Ordinarily Amount to Impossibility

Increased Cost of Performance

A rise in the cost of raw materials, fuel, labour or transportation does not automatically frustrate a contract.

Example: A agrees to supply goods to B at a fixed price. The market price of the goods rises significantly after the agreement. A is not ordinarily discharged merely because the transaction has become less profitable.

Commercial Hardship

A contract may become financially burdensome without becoming legally impossible.

A party generally cannot rely on Section 56 merely because performance has become economically unattractive or the expected profit has disappeared.

Temporary Difficulty

A temporary interruption does not necessarily discharge a contract. The court considers the duration of the interruption, the nature of the obligation and whether performance remains possible within the contractual framework.

Events That the Contract Already Addresses

Where the contract contains an applicable force majeure or contingency clause, the consequences may be governed by that provision. A party cannot automatically disregard the agreed allocation of risk and invoke Section 56 instead.

Landmark Case Law on Discharge by Impossibility

Satyabrata Ghose v. Mugneeram Bangur & Co.

Citation: AIR 1954 SC 44; (1954) SCR 310.

In Satyabrata Ghose v. Mugneeram Bangur & Co., the Supreme Court of India examined the scope of Section 56 and the doctrine of frustration in a dispute concerning a land-development scheme.

Mugneeram Bangur & Co. had entered into agreements for the sale of plots in a development project. During the Second World War, land forming part of the scheme was requisitioned by the government. The company argued that the requisition had made performance impossible.

The Supreme Court considered whether the requisition order had destroyed the foundation of the contractual arrangement. It explained that impossibility under Section 56 is not confined to literal or physical impossibility. An event may frustrate a contract where it makes performance impracticable or useless in relation to the purpose of the agreement and fundamentally changes the basis on which the parties contracted.

However, the Court held that the requisition in the particular case had not made performance impossible. The development work could still be undertaken, and the circumstances did not establish that the foundation of the contract had been destroyed.

The appeal was allowed, and the Court rejected the argument that the contract had been frustrated.

Legal principle: Section 56 covers supervening impossibility and frustration, but the court must examine the contract and the effect of the event. Mere delay or interruption does not automatically discharge contractual obligations.

This is a leading case for understanding the meaning of impossibility under Indian contract law.

Energy Watchdog v. Central Electricity Regulatory Commission

Citation: (2017) 14 SCC 80.

In Energy Watchdog v. Central Electricity Regulatory Commission, the Supreme Court considered whether changes in the price and availability of imported coal justified relief under power purchase agreements.

The dispute arose after changes affecting the cost of imported coal made the supply of electricity more expensive for power-generating companies. The companies sought relief under force majeure provisions and, alternatively, under Section 56 of the Indian Contract Act, 1872.

The Supreme Court examined the force majeure clauses in the agreements and the distinction between Section 32, which concerns contractual contingencies, and Section 56, which deals with supervening impossibility or illegality.

The Court held that the rise in the cost of imported coal did not frustrate the contracts because alternative modes of performance remained available, even though they were more expensive. The contractual provisions did not provide the claimed relief for the price increase in the circumstances before the Court.

Legal principle: Increased expense or commercial hardship does not, by itself, make a contract impossible under Section 56. Where a force majeure clause governs the event, its terms must be examined before relying on the doctrine of frustration.

This decision is especially important in commercial contracts, infrastructure projects, energy agreements and disputes involving force majeure clauses.

Raja Dhruv Dev Chand v. Harmohinder Singh

Citation: AIR 1968 SC 1024; (1968) 3 SCR 339.

In Raja Dhruv Dev Chand v. Harmohinder Singh, the Supreme Court considered whether Section 56 applied to a completed lease of agricultural land affected by the consequences of the Partition of India.

The lessee had obtained a lease of agricultural land in undivided Punjab. Following Partition, the land came to be situated in Pakistan, and the lessee migrated to India. He sought a refund of rent, arguing that the circumstances had made performance impossible.

The Supreme Court distinguished a completed transfer of property from an executory contract. It held that Section 56 could not be used to invalidate a completed transfer merely because subsequent events affected the lessee’s ability to use the land as intended.

The Court explained that the doctrine of frustration under Section 56 is governed by the statutory provision and cannot be extended beyond its proper scope by importing principles that conflict with the Act.

Legal principle: Section 56 governs contracts within its scope, but the doctrine of frustration does not automatically invalidate a completed transfer of property. The legal nature of the transaction must be identified before applying the doctrine.

Sushila Devi v. Hari Singh

Citation: (1971) 2 SCC 288.

In Sushila Devi v. Hari Singh, the Supreme Court considered an agreement to lease agricultural land that could not be carried out in the circumstances arising after Partition.

The Court distinguished an agreement to lease from a completed lease. Because the proposed lease required a registered instrument that had not been executed, the transaction remained an agreement to lease rather than a completed transfer.

The Court explained that impossibility under Section 56 is not limited to acts that are physically impossible. If performance becomes impracticable or useless in relation to the object and purpose of the parties, the contract may be frustrated where the supervening event destroys the very foundation of the agreement.

Legal principle: Section 56 may apply where a supervening event strikes at the root of an executory agreement. The distinction between an agreement to transfer property and a completed transfer is legally significant.

Difference Between Initial Impossibility and Supervening Impossibility

Basis	Initial impossibility	Supervening impossibility
Meaning	The promised act is impossible when the agreement is made.	The act becomes impossible or unlawful after the contract is made.
Relevant provision	First paragraph of Section 56	Second paragraph of Section 56
Legal effect	The agreement is void.	The contract becomes void when the act becomes impossible or unlawful.
Example	Agreement to discover treasure by magic	Contract to supply a specific item that is subsequently destroyed, making the promised performance impossible
Compensation	The third paragraph may apply if its conditions are satisfied.	The applicable consequences depend on the supervening event and the contract.

Difference Between Discharge by Impossibility and Discharge by Breach

Basis	Discharge by impossibility	Discharge by breach
Meaning	Performance becomes impossible or unlawful under the applicable legal rule.	A party fails or refuses to perform a contractual obligation as required.
Cause	A legally relevant impossibility or supervening event	Non-performance attributable to a party’s failure or refusal
Main provision	Section 56	Relevant contractual provisions and remedies, including Section 73 where applicable
Legal effect	The contract becomes void under Section 56 when its requirements are met.	The affected party may have remedies for breach, including compensation.
Example	A subsequent legal prohibition makes the promised act unlawful.	A seller refuses to deliver goods despite being able to perform.

Section 32 and Section 56: Force Majeure and Frustration

Section 32 and Section 56 are particularly important when a contract contains a force majeure clause.

Section 32 concerns contingent contracts and may govern the consequences of an event where the contract itself specifies what is to happen if that event occurs. Section 56 applies to an act that becomes impossible or unlawful after the contract is made, within the scope of the section.

Where a contract expressly provides for events such as floods, war, government restrictions or other disruptions, the court must examine the wording of the clause and determine whether it covers the event in question.

If the clause applies, the contractual provision generally governs the consequences. If it does not apply, a party may seek to rely on Section 56 only if the legal requirements for frustration are independently satisfied.

In Energy Watchdog, the Supreme Court emphasised the distinction between a contractual force majeure provision and frustration under Section 56. The case demonstrates that parties cannot claim discharge merely because a commercial event has made performance more expensive.

Consequences of Discharge by Impossibility

The Contract Becomes Void

Under the second paragraph of Section 56, a contract becomes void when the promised act becomes impossible or unlawful in the legally recognised circumstances.

The parties are no longer required to perform the obligations that have been discharged by the operation of the section.

Remaining Contractual Obligations Come to an End

Once the contract becomes void under Section 56, the parties are generally released from future performance of the obligations affected by the impossibility.

However, the effect on obligations that have already accrued, separate contractual provisions or other surviving rights must be considered in light of the facts and applicable law.

Restoration of Benefits Under Section 65

Section 65 of the Indian Contract Act, 1872, provides for restoration of advantages received under an agreement discovered to be void or a contract that becomes void.

For example, A pays B an advance under a contract for a particular event. Before performance, an event occurs that makes the contract void under Section 56. Where Section 65 applies, the party who received the advantage may be required to restore it or compensate for it.

The application of Section 65 depends on the nature of the transaction and the benefit received. It should not be assumed that every payment is automatically refundable without examining the facts and the applicable legal principles.

Compensation May Be Available in Certain Cases

Where the promisor knew, or with reasonable diligence might have known, that the promised act was impossible or unlawful, while the promisee did not know, the third paragraph of Section 56 provides for compensation for the resulting loss.

This is distinct from a contract that becomes impossible because of a genuinely supervening event after the agreement was made.

Key Points for Exams

• Discharge by impossibility is principally governed by Section 56 of the Indian Contract Act, 1872.
• The first paragraph of Section 56 deals with agreements to perform acts impossible in themselves.
• The second paragraph deals with contracts that subsequently become impossible or unlawful.
• The third paragraph provides for compensation where the promisor knew or ought to have known of the initial impossibility or illegality, while the promisee did not.
• The doctrine of frustration is an aspect of the law of discharge by supervening impossibility or illegality.
• Impossibility is not limited to literal physical impossibility, but the event must satisfy the legal threshold.
• Increased costs, commercial hardship and inconvenience do not automatically frustrate a contract.
• Section 32 may govern contractual force majeure or contingency clauses, while Section 56 governs supervening impossibility within its scope.
• Section 65 may require restoration of advantages received under a contract that becomes void.
• In Satyabrata Ghose v. Mugneeram Bangur & Co., the Supreme Court explained the scope of impossibility and frustration under Section 56.
• In Energy Watchdog v. CERC, the Supreme Court held that increased fuel costs did not frustrate the relevant contracts where alternative performance remained available.
• In Raja Dhruv Dev Chand v. Harmohinder Singh, the Court distinguished completed transfers of property from executory contracts for purposes of Section 56.

Conclusion

Discharge by impossibility is an important method of discharge under the Indian Contract Act, 1872. Section 56 deals with agreements that are impossible from the outset, contracts that subsequently become impossible or unlawful, and compensation in specified cases involving known impossibility.

The doctrine of frustration ensures that parties are not required to perform contracts where a legally recognised supervening event destroys the possibility or essential foundation of performance. However, it does not provide a general escape from commercial risk. Increased costs, financial difficulty and inconvenience ordinarily do not discharge a contract.

The decisions in Satyabrata Ghose, Energy Watchdog, Raja Dhruv Dev Chand and Sushila Devi demonstrate that courts examine the contract, the nature of the event, the availability of alternative performance and the legal character of the transaction before deciding whether Section 56 applies.