What is the key rule from this case?

Mere rise in costs or hardship does not frustrate a contract under Section 56. Frustration applies only when performance becomes impossible or unlawful.

Does a price change promise during war bind the Government?

Not automatically. Only a valid modification supported by consideration and proper authority binds. Assurances without formal change are not enforceable.

What if parties mutually modify the price?

The modified bargain governs. Payment is as per the substituted terms, not the original price.

Can hardship equal frustration?

No. Hardship or onerous performance is not frustration. The contract stands unless it truly becomes impossible or unlawful.

What relief did the suppliers get?

No extra payment beyond the agreed modified price. The Court refused additional claims based on hardship.

M/s. Alopi Parshad & Sons Ltd. v. Union of India (AIR 1960 SC 588)

Supreme Court of India Year: 1960 Bench: — Citation: AIR 1960 SC 588 Area: Contract Law Reading Time: ~7 min

PRIMARY: Section 56, Frustration, Impossibility SECONDARY: Wartime price, Hardship, Modification Author: Gulzar Hashmi Location: India Publish: 12-Feb-2024

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Quick Summary

Core idea: Section 56 does not rescue a party just because performance becomes expensive or difficult. In this wartime supply contract for ghee, the price was later reduced by mutual agreement. When costs rose further, the suppliers asked for a hike and got only a non-binding assurance. They still supplied. The Supreme Court held that hardship is not frustration. The modified bargain governs; no extra payment beyond the substituted terms.

Issues

Does Section 56 (frustration/impossibility) apply when performance becomes onerous due to wartime conditions?
After a mutual price revision, which price controls—original or substituted?
Is a general assurance to consider a higher price legally enforceable?

Rules

Principle	Meaning	Effect Here
Section 56, ICA — Frustration	Contract becomes void only if performance becomes impossible or unlawful, not merely harder or costlier.	No frustration; supply remained possible, though expensive.
Substituted Agreement	When parties validly modify terms, the substituted terms govern future performance and payment.	Government had to pay the reduced, agreed price.
Assurances vs Binding Terms	Informal assurances without clear modification/consideration do not change contract obligations.	“Might be entertained” ≠ enforceable promise.

Facts (Timeline)

Timeline of Alopi Parshad & Sons v Union of India

Supply Contract: Government appoints the plaintiff-suppliers to deliver ghee for the army.

War & Controls: World War II triggers controls; after three years, parties mutually reduce the price.

Hardship Claim: A year later, suppliers seek a price increase due to rising costs and burdensome performance.

Assurance Only: Government says the request “might be entertained”, but no formal increase follows. Supplies continue.

Dispute: Suppliers claim extra payment; Government stands by the substituted price.

Arguments

Appellant (Suppliers)

Performance became extremely onerous due to wartime escalation.
Government assurance created a basis for higher payment.
Fairness requires compensation beyond the reduced price.

Respondent (Union of India)

Substituted agreement controls; parties are bound by the reduced price.
No impossibility—only increased expense; Section 56 is not attracted.
Assurance was not a binding variation; no legal basis for extra payment.

Judgment

The Supreme Court rejected the claim for additional payment. The contract was not frustrated. The substituted price—agreed by both sides—governed. A vague assurance to consider a hike did not amend the bargain.

Ratio

Hardship ≠ Frustration: Section 56 needs impossibility or illegality, not mere difficulty or loss.
Party Autonomy: Valid modifications replace earlier terms; courts enforce the modified deal.
No informal variation: Assurances without a clear, authorized modification have no contractual force.

Why It Matters

This case is a steady anchor for commercial certainty. Prices rise and fall, but contracts hold unless truly impossible. It guides public procurement and private supply chains: renegotiate properly—or perform the bargain you made.

Key Takeaways

Section 56 is narrow: Impossibility/unlawfulness, not inflation or hardship.
Write changes down: Only a clear, authorized modification counts.
Substituted terms rule: After revision, the new price governs.
Assurance ≠ obligation: “We will consider” is not a promise to pay.

Mnemonic + 3-Step Hook

Mnemonic: “HIM” — Hardship isn’t frustration, Impossibility is required, Modified terms govern.

Ask: Is performance impossible or just expensive?
Check: Was there a valid, authorized price modification?
Apply: Enforce substituted terms; ignore vague assurances.

IRAC Outline

Issue: Can suppliers claim beyond a reduced, substituted price by invoking frustration or hardship?

Rule: Section 56 voids contracts only when performance becomes impossible/unlawful; valid modifications supersede original terms.

Application: Performance continued; only costs rose. Parties had already reduced price by agreement. Later “consideration” assurance did not amend the contract.

Conclusion: No frustration; payment confined to the substituted price.

Glossary

Frustration: A contract ending because performance becomes impossible or unlawful.
Hardship: Performance becomes costly or burdensome, but still possible.
Substituted Agreement: A later agreement that changes and governs the original bargain.
Assurance: A non-binding statement to consider change; not a contract term.

FAQs

No. Hardship alone is not frustration. The law needs impossibility or unlawfulness.

Only if there is another valid, authorized modification. Otherwise, the substituted price controls.

Not by themselves. There must be a clear, legal modification with proper authority.