Contracts derive validity from the underlying principle of “Pacta Sund Servanda” which means that agreements are meant to be kept. It is the desire of the parties to comply and to be bound with with the terms of the contract voluntarily that gives it the necessary binding force. However, sometimes a party(s) to a contract is affected by some event beyond its control that makes it impossible for it to perform its part of the contract. In such a situation, the doctrine of Force Majeure applies.
Scope Of Force Majeure
Force Majeure signifies a certain set of circumstances arising after the formation of the contract, the occurrence of which is due to no fault of either party and which render performance of the contract by one or both parties physically and commercially impossible. Force majeure events are usually defined as acts, events or circumstances beyond the control of the parties, for example, natural disasters or the outbreak of hostilities, which were totally unexpected, unanticipated, unpredictable or unavoidable. Its underlying principle is that on the occurrence of certain events which are outside a party's control, that party is excused from, or entitled to suspend performance of all or part of its obligations. That party will not be liable for its failure to perform the obligations, in accordance with the clause.
Meaning Of Force Majeure
The doctrine of Force Majeure is defined and explained by various legal dictionaries in the following words:
Random House Dictionary of the English Language, Second Edition
An unexcepted and disruptive event which may operate to excuse a party from a contract (page 455).
Black’s Law Dictionary, Eighth EditionAn event or effect that can be neither anticipated nor controlled (page 673).
A contractual provision allocating the risk if performance becomes impossible or impracticable, especially as a result of an event or effect that the parties could not have anticipated or controlled (page 674).
Force Majeure Governed By Contracts
The events which invoke the Force Majeure clauses in operation are usually provided and governed by the contracts inter-se the parties. This means that parties can decide among them as to what will constitute as a Force Majeure event. This clause allows parties to add for specific instances which will make the contract impractical or impossible for performance so that on occurrence of such event, they can claim an evasion or suspension from their obligations thereon.
For example, a supplier in a supply agreement may make a provision that in the event the procurement of raw material by supplier becomes impossible or problems arise at the manufacturing plant, the supplier may invoke Force Majeure and seek suspension from his obligations until the Force Majeure event has ceased.
However, if the parties have not provided for what would happen when an event which renders the performance of the contract impossible, the Section 56 of the Contract Act, 1872 applies.
Section 56 Of Contract Act, 1872
Section 56 of the Contract Act reads:
56. Agreement To Do Impossible Act:
An agreement to do an act impossible in itself is void.
Contract to do act afterward 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 an 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 (emphasis added).
As per the emphasized language of Section 56 above, when the act contracted for becomes impossible the parties are exempted from further performance and the contract becomes void.
However, it is noteworthy that the provisions of Section 56 are only applicable when the contract becomes impossible to perform and not otherwise. The term impossible has been interpreted to mean impracticable also which implies practical difficulties.
When Is Force Majeure/Doctrine Of Frustration Invoked
The parties to a contract can seek to invoke Force Majeure or the Doctrine of Frustration under Section 56 when:
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The event which has caused the impossibility of the performance of the contract was not foreseen or could not have been foreseen by the affected party with reasonable diligence at the time of execution of the contract;
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The event which has made the performance of the contract impossible arose subsequently and was not within the contemplation of the affected party at the time of execution of the contract.
However, where the impossibility of the contract is within the knowledge of the promisor or he could have anticipated it, the doctrine of Force Majeure or Frustration is not applicable.
Key Principles Deduced
Key principles in respect of Section 56 of the Contract Act, 1882 dealing with the frustration of contracts on account of the Force Majeure events can be laid out as:
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The Doctrine of Force Majeure is not only applicable in the event of physical or literal impossibility to do an act. The performance of an act may not be literally impossible but it may be impracticable and useless and if an unforeseen event or change of circumstances totally destroys the very foundation of the adventure.
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The Doctrine of Force Majeure is applicable when an unforeseen event or change of circumstances makes the performance of contract impossible. Such doctrine would not apply to a case where anticipated circumstances took place for which provision had already been made in the contract.
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The Doctrine of Force Majeure is not applicable when a person assumes the risk of impossibility of performance. For instance, if an irrigation company promises to supply water for irrigation or other use in a dry country, it may be held to be its duty to anticipate natural shortages, even unusually severe ones, and to find the necessary water at the time and place that it exists.
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The Doctrine of Force Majeure is not applicable if the supervening situation could have been foreseen and avoided by the exercise of reasonable diligence and efficiency.
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The doctrine of frustration could not be pressed into service in the event of commercial impossibility, making the promised performance more difficult or expensive. Financial difficulties growing out of general business depression may cause personal inability but do not constitute an excuse by impossibility of performance. Hardship or unexpected expense falling on one of the parties to a commercial adventure can never excuse him from it so long as the adventure remains recognizably that on which the parties embarked.
