When the performance of the contract becomes impossible, the purpose, which the parties have in mind, is frustrated. If the performance becomes impossible, because of supervening event, the promisor is excused from the performance of the contract. This known as doctrine of frustration under English law, and is covered by section 56 of the Indian Contract Act.
Section 56, Contract Act:
Sec. 56. 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 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 promise.
(a). A agrees with B to discover treasure of 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 his promise.
(e). A Contracts to act at a theatre for six months in consideration of 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.
Initial impossibility: Para of Sec. 56 provide that if a contract is impossible of being performed, the parties to it will never be able to fulfill their object, and hence such an agreement is void [See Illustration (a)]
Subsequent or supervening impossibility: Para 2 of sec. 56 provide that the performance of contract may be possible when the contract is entered into but because of some event, the performance may subsequently become impossible or unlawful [see Illustration (b), (d) and (e)].
Para 3 of Sec. 56 deals with situation where one party knew about the impossibility of performance of the contract, but the other didn’t [See Illustration (c)]