The pandemic has slowed global economic activity and shaken the positions of businesses of all sizes – large, medium, and small – though the full effect has yet to be calculated. Contractual commitments are frequently getting jeopardized as a result of the outbreak. Some may be unable to fulfill their contractual obligations. Many people are left wondering whether there is any contractual cover they may take advantage of in this time of confusion. Much to their delight, the answer is a yes. If you find yourself in a similar situation, where you are being called upon to invoke the force majeure clause due to the pandemic. But there’s a catch: force majeure is a contractual occurrence. In our law, what constitutes force majeure is determined by the contractual terms that the parties may have agreed to. What if the contract doesn’t have a force majeure clause, or if the clause does, it doesn’t cover the ongoing COVID-19? In such cases, the Best Lawyers in Pune advise the organization to rely on the frustration doctrine in this situation.
Section 56 of Indian Contract Act 1872, is based on the maxim “ les non cogit ad impossibilia” which means that the law will not compel a man to do what he cannot possibly perform.
The doctrine of frustration is however applicable only in 2 cases
⦁ If the object of the contract has become impossible to perform
⦁ An event has occurred making the performance of the contract to be impossible beyond the Control of promisor.
Section 56 of Indian Contract Act 1872, is as follows
S.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 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.
(a) A agrees with B to discover treasure by 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 contracts to marry B, being already married to C, and being forbidden by the law to which he is subject to practise polygamy. A must make compensation to B for the loss caused to her by the non-performance of his promise.
(d) A contracts to take in cargo for B at a foreign port. A’s Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.
(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.
Breach of Contract:- It is on this principle that the Act of God is in some cases said to execuse the breach of a contract.
Case law:- Industrial Finance corporation of India Ltd. vs Cannanore Spinning & Weaving Mills Ltd. AIR 2002 SC 1841; 2002 (3) scale 574.
Doctrine of Frustration
Applicability of- The demand charge relates to a charge on the consumer for keeping reserve the energy to supply him to the extectent of contractual demand of energy. A consumer is liable to pay the same if the energy is supplied to the consumer by the licensee whether he draws or utilizes the same or not. the aforesaid relationship of the consumer with the supply company arises out of a contract entered into between them, having mutual obligations. here in this case, it is seen that by the act of god, it become impossible for the supply company to supply the power to the consumer. The suprevening circumstances in which neither of the parties had any control, made the contract for the same impossible of being performed and as such during the said perod, it can be said that the contract was hit by the ” doctrine of frustration” In such a situation the supply company has no obligation to supply power and if any cliam would have been made by the consumer for non-supply of energy, it goes without saying that the company could have escaped from the liability thereof taking the resort to the aforesaid doctrine of frustration. whehn the company could have escaped from the liability by availaing of the doctrine of frustration, in such premises, it is fallacius to say that it could have pressed the consumer to pay the tariff charge even though, it has not supplied the power to the petitioner. As during the period in dispute there being no contractual obligation on either of the parties, levy of demand on the petitioner as made by the opposite party-company cannot sustained.
case laws:- Indian Rare Earths Ltd. V.s Managing Director, Southern Electricity Supply Co.of Orissa Ltd. AIR 2010 Orissa 115.
Frustration of Contract:-
From a study of these principles, what emerges is the Doctrine of frustraion is trully an aspect forming part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to done and therefore is covered by the sweep of section 56 of the Indian Contract Act. this concept and doctrine of frustration has therefore to be applied within very narrow limits. As was notices supra, the factors which truly render the contract impossible of performance have all been spelt out in great detail. The prospects of dwindling profits from the contract all due to inflation of the procurement price of the raw materials clearly therefore is not a factor which falls within the purview of section 56. The disappointed expectations of one of the parties to a contract who was required to supply the material to the other, do not, hence, lead to the frustration of the contract. A contract cannot be declared to have been frustrated all because its performance has become more onerous on account of unforeseen circumstances.
case laws:- Premier Explosives Ltd. V. Chairman and managing Director, Singareni Collieries Co.ltd. and Ors. AIR 2010 AP 107
The condition necessary for the application of Section 56
There exist a valid and subsisting contract between the parties:-
Existence of a valid contract is the foremost condition for the application of Section 56. The valid contract includes a contract entered in between competent persons and which is followed by some consideration.
There must be some part of the contract which is yet to be performed:-
Section 56 will have applicability only if there is some part of the contract which is yet to be performed and without performing it the ultimate purpose of the contract is not fulfilled.
The contract after it is entered into becomes impossible of performance:-
Another important condition for the application of section 56 is that the contract after it has been entered into has become impossible to perform and cannot be performed and therefore contract stands void.
Doctrine of frustration as enshrined in Section 56 of the Indian contract act 1872 deals with those cases where the performance of contract has been frustrated and the performance of it has become impossible to perform due to any unavoidable reason or condition. This doctrine is treated as an exception to the general rule which provides for compensation in case of breach of contract. But section 56 only deals with cases of subsequent impossibility as opposed to cases of initial impossibility.
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