Impossibility may exist at the time of the contract or may arise subsequently. It may be physical or legal impossibility. In either case, the agreement is void ab-initio. The object being that the law cannot compel the impossible. When the subject matter is destroyed, the contract is frustrated by virtue of physical impossibility. Even where the object contemplated by the parties fails to materialize the contract is frustrated.
Where a flat was hired for purposes of witnessing coronation ceremony on fixed announced days and subsequently the coronation ceremony was cancelled, it was held that as the object of the contract was frustrated by the non-happening of the coronation, the defendant was not liable to pay balance of rent.
A contract to do an act which after the contract is made becomes impossible or unlawful by some event which the promisor could not prevent, becomes void when the act becomes impossible or unlawful. When the impossibility of performance cannot reasonably be supposed to have been in contemplation of the contracting parties when the contract was made, performance or further performance of the promise is excused.
The contract may be impossible of performance due to supervening impossibility or illegality or due to frustration of a contract by occurrence of an unexpected event or a change of circumstances beyond the contemplation of parties or over which the parties have no control. A contract may be frustrated by emergency, regulations and restrictions. Impossibility may also be created by change of law or destruction of subject matter. Where an act becomes unlawful, the performance of the contract can be excused on the ground of impossibility. However, if impossibility is brought about by an act of a party to the contract, the performance of the contract is not excused. The impossibility of performance must be in respect of a term of the contract. However, if contract can be performed in any other manner, the contract is not frustrated. There is a general principle that a party prevented from doing an act by some circumstances beyond his control, can do so at the first subsequent opportunity.
Impossibility does not include commercial impossibility; for example, where the performance of the contract becomes onerous. Where A wants to avoid the construction of a building as the building cost has become costlier, it has been held that this is a case of commercial impossibility and the performance is, therefore, not excused. Similarly, restrictions imposed by Government on trade or export are cases of commercial impossibility.
When there is frustration, the dissolution of the contract occurs automatically. It does not depend on the choice or election of either party.
The doctrine of frustration cannot be availed of by the person when the non-performance of the contract was attributable to his own default.
To summarize, the contract becomes impossible of performance or is frustrated in any of the following cases:
(i) Where the subject matter of the contract ceases to exist.
(ii) Where circumstances arise which make the performance of the contract impossible.
(iii) Where object contemplated by the parties or the event contemplated does not occur, the contract is frustrated.
(iv) Where the party who is to only perform the contract dies, or is incapacitated from performing the contract.
(v) Where enactment of legislation or Government interference prevents the performance of the contract.
(vi) Where act becomes unlawful.
Effects when the contract becomes impossible:
When the contract becomes impossible, the party who has received any advantage under it must restore it to the other party or make compensation for it.
Where one person has promised to do something, which he knew, or with 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. Party cannot take advantage of impossibility caused by his own default. —