When the Sale Cannot Happen: Impossibility, Refunds and Your Advance Under the Contract Act

A Bengaluru buyer signs an agreement to buy a plot and pays an advance. Months later, before the sale deed, something outside both parties' control makes the sale impossible or unlawful. Who keeps the advance? Is anyone in breach? The Indian Contract Act, 1872 deals with this in Section 56, on impossibility, and Section 65, on giving back what was received. Together they decide whether a failed deal ends with a refund, compensation, or a dispute.

This guide explains those two sections, the line between a genuinely impossible contract and a merely difficult one, and what to write into a sale agreement. The scenario above is an illustration. It is not advice on any agreement.

The short answer. Section 56 says an agreement to do an act impossible in itself is void, and a contract that later becomes impossible, or unlawful because of an event the promisor could not prevent, "becomes void when the act becomes impossible or unlawful." A promisor who knew, or with reasonable diligence might have known, that the act was impossible or unlawful, when the promisee did not, must compensate the promisee. Section 65 says that when a contract becomes void, anyone who received an advantage under it "is bound to restore it, or to make compensation for it." The trade-off: these rules protect an advance when a deal truly cannot happen, but they do not excuse a party just because performance became costlier or slower, so the agreement's own terms on approvals and timelines still matter most.

When does a property agreement become void for impossibility?

When the act itself becomes impossible or unlawful. Section 56 has three parts. The first says: "An agreement to do an act impossible in itself is void." The second says: "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."

The Act's illustrations are deliberately simple. In illustration (d), A contracts to take in cargo for B at a foreign port, and A's government later declares war against that country: "The contract becomes void when war is declared." In illustration (e), an actor paid in advance is too ill to act on several occasions, and the contract "to act on those occasions becomes void."

For a property buyer, the question is whether the sale itself has become impossible or unlawful, not whether it has become harder, slower or more expensive. Section 56's wording turns on the act becoming "impossible" or "unlawful," and whether that has happened is a question of fact for a court in any disputed case.

Who pays if the seller knew the sale could not happen?

The seller, in that situation. The third part of Section 56 says: "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."

That matters where a seller agrees to sell land they knew, or should have known, could not lawfully be sold, while the buyer did not know. The buyer is then entitled to compensation for loss, not just a refund. Our explainer on how Sections 73 and 74 measure compensation for breach covers how loss and named sums are treated.

Do you get your advance back if the contract becomes void?

Section 65 says so. It reads: "When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it."

Illustration (a) to Section 65 shows the principle in a simple case: A pays B 1,000 rupees for a promise that turns out to be void from the start; "The agreement is void, but B must repay A the 1,000 rupees." For a buyer whose sale agreement becomes void under Section 56, the seller who received the advance is bound to restore it or compensate for it.

The obligation runs both ways. If the buyer received any advantage under the agreement, for example possession of the property before the sale, Section 65 applies to the buyer too. Return of money and return of possession need to be settled together.

Illustration (d) to Section 65 draws a useful line. A singer paid 1,000 rupees in advance is too ill to sing. The singer "is not bound to make compensation to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B the 1,000 rupees paid in advance." Where a deal fails through genuine impossibility, restoring the advance is the core remedy; compensation for loss arises under the third paragraph of Section 56 where the promisor knew or should have known.

Is a builder's "force majeure" clause the same as Section 56?

Not necessarily. A force majeure clause is a contractual term, and its effect depends on its wording. Section 56 is a rule of law about impossibility and unlawfulness. A clause may define events, extend timelines, or suspend obligations in ways that differ from Section 56.

Our report on a High Court ruling that rejection of building plans was not force majeure shows how one court treated a plan rejection under such a clause. For new flats registered under RERA, that law's provisions on delay and refunds also apply, and they should be read alongside the agreement and the Contract Act.

What should a Bengaluru buyer write into the agreement?

Clear terms on what happens if approvals or the sale fail. Use this checklist with your lawyer:

1. List the approvals, permissions and title conditions the sale depends on, and who is responsible for each.
2. Ask the seller to state in writing that they know of no legal bar to the sale.
3. State that if the sale becomes impossible or unlawful, the advance is refunded within a fixed number of days.
4. Add interest on the refund if it is delayed beyond that period.
5. Define any force majeure events narrowly, and state what happens to timelines and payments.
6. Record any possession given before the sale, and how it will be returned if the deal fails.
7. Pay advances by bank transfer so the amount to be restored is clear.

What if only part of the deal becomes impossible?

The Contract Act separates lawful and unlawful parts. Section 57 says that where persons promise, first, to do lawful things and, second, under specified circumstances, to do unlawful things, "the first set of promises is a contract, but the second is a void agreement." Its illustration is a house sale: an agreement to sell a house for 10,000 rupees is a contract, while an added promise to pay 50,000 rupees if the buyer uses it as a gambling house is void.

Section 56's illustration (e) shows that impossibility can affect parts of a contract: the actor's contract "to act on those occasions becomes void," not necessarily the whole engagement. In property, a deal covering more than one plot or unit may raise the question of whether the failure of one part affects the rest. The agreement should say whether the parts stand or fall together.

Section 67 adds a fairness rule: if a promisee "neglects or refuses to afford the promisor reasonable facilities for the performance of his promise," the promisor is excused for any non-performance caused by that. A buyer who does not provide documents or access the seller reasonably needs to complete the sale cannot then blame the seller for the resulting delay.

Where only a portion becomes impossible, the restitution rule in Section 65 still applies to any advantage received for that portion. Settle that in writing, ideally with a revised agreement covering the remaining property.

Frequently asked questions

Does a property sale agreement become void if the sale becomes impossible?

Section 56 of the Indian Contract Act says a contract to do an act which, after it is made, becomes impossible, or unlawful because of an event the promisor could not prevent, becomes void when the act becomes impossible or unlawful. Whether that has happened is a question of fact.

Do I get my advance back if the contract becomes void?

Section 65 says that when an agreement is discovered to be void, or a contract becomes void, any person who received an advantage under it is bound to restore it, or to make compensation for it, to the person from whom it was received. That covers an advance paid to a seller.

Can I claim compensation if the seller knew the sale was impossible?

Yes. Section 56 says a promisor who knew, or with reasonable diligence might have known, that the act was impossible or unlawful, when the promisee did not, must compensate the promisee for loss caused by non-performance. That goes beyond a simple refund of the advance.

Is a force majeure clause the same as impossibility under the Contract Act?

Not necessarily. A force majeure clause is a contract term whose effect depends on its wording, while Section 56 is a rule about acts becoming impossible or unlawful. Buyers should read both, and for RERA-registered projects, the RERA provisions on delay and refunds as well.

This article explains provisions of the Indian Contract Act, 1872 for information only and is not legal advice. Have a lawyer review any sale agreement before you pay an advance.

Last updated 2026-11-10. PropNewz Team.