MEANING, DEFINITION & EXPLANATION
The Doctrine of Commercial Impracticability addresses situations where unforeseen events, beyond the control of contracting parties, render the performance of contractual obligations excessively burdensome or costly, though not impossible. This doctrine allows for the discharge of contractual duties when performance becomes impracticable due to unforeseen circumstances.
In the United States, this principle is encapsulated in Section 2-615(a) of the Uniform Commercial Code (UCC), which excuses non-performance when it is “made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made.”
HISTORICAL BACKGROUND / EVOLUTION
Historically, common law adhered strictly to the principle of pacta sunt servanda (“agreements must be kept”), enforcing contracts regardless of unforeseen hardships. Over time, courts recognized that rigid enforcement could lead to unjust outcomes when unforeseen events drastically altered the contract’s nature. This led to the development of doctrines like frustration and impracticability to address such situations.
In India, the concept aligns with the doctrine of frustration under Section 56 of the Indian Contract Act, 1872, which deals with the effect of supervening impossibility on contracts.
COMPARISON WITH OTHER COUNTRIES
In civil law jurisdictions, doctrines akin to commercial impracticability are recognized under principles like imprévision in French law, allowing contract adaptation or termination when unforeseen events disrupt the contractual equilibrium.
In contrast, English common law does not recognize commercial impracticability as a ground for discharge; instead, it relies on the doctrine of frustration, which applies only when performance becomes impossible, not merely onerous.
The United States adopts a more flexible approach, acknowledging impracticability as a valid defense under the UCC.
ESSENTIALS / ELEMENTS / PRE-REQUISITES
For the Doctrine of Commercial Impracticability to apply, the following elements are typically required:
- Unforeseen Event: The occurrence of an event that was not anticipated by the parties at the time of contracting.
- Basic Assumption: The non-occurrence of the event was a fundamental assumption upon which the contract was based.
- Performance Made Impracticable: The unforeseen event renders performance excessively burdensome, costly, or unfeasible, though not impossible.
- No Fault of the Party Claiming Impracticability: The party seeking relief must not be responsible for the occurrence of the unforeseen event.
LEGAL PROVISIONS / PROCEDURE / SPECIFICATIONS / CRITERIA
In India, the concept of commercial impracticability is encompassed within Section 56 of the Indian Contract Act, 1872, which states:
- 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.
This provision implies that if a contract becomes impossible or unlawful to perform due to unforeseen events beyond the control of the parties, it becomes void. However, Indian courts have been reluctant to excuse performance solely on the grounds of increased difficulty or expense, emphasizing that the threshold for impossibility is high.
CASE LAWS / PRECEDENTS
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Satyabrata Ghose v. Mugneeram Bangur & Co. (1954 SCR 310):
- In this landmark case, the Supreme Court of India interpreted Section 56 and held that the word “impossible” in this section does not mean literal impossibility to perform (e.g., destruction of the subject matter) but includes impracticability and futility, where an unforeseen event upsets the very foundation upon which the parties rested their agreement.
- The court emphasized that the doctrine of frustration is an aspect of the law of discharge of contract by supervening impossibility or illegality of the act agreed to be done.
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Energy Watchdog v. Central Electricity Regulatory Commission (2017 14 SCC 80):
- The Supreme Court clarified that a mere rise in cost or expense does not constitute a valid ground for invoking the doctrine of frustration under Section 56.
- The court held that the doctrine applies only when an unforeseen event or change of circumstances totally upsets the foundation upon which the parties entered their agreement.
DOCTRINES / THEORIES
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Doctrine of Frustration:
- Codified under Section 56 of the Indian Contract Act, 1872.
- Provides that a contract becomes void if, after it is made, it becomes impossible to perform due to an event which the promisor could not prevent.
- Based on the principle that if the performance of a contract becomes impossible due to unforeseen events, the parties are discharged from their obligations.
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Force Majeure:
- Often included as a clause in contracts, referring to extraordinary events or circumstances beyond the control of the parties (e.g., natural disasters, wars) that prevent one or both parties from fulfilling their obligations.
- Distinction: While related, force majeure is based on contractual terms, whereas frustration is a statutory or common law principle.
MAXIMS / PRINCIPLES
- Pacta Sunt Servanda: A fundamental principle in contract law meaning “agreements must be kept.” The Doctrine of Commercial Impracticability serves as an exception to this principle, allowing for discharge when performance becomes unreasonably burdensome due to unforeseen events.
- Rebus Sic Stantibus: A principle meaning “things standing thus,” which allows for treaties or contracts to become inapplicable because of a fundamental change of circumstances. This principle underlies the doctrines of frustration and impracticability.
CRITICISM / APPRECIATION
The Doctrine of Commercial Impracticability balances the strict enforcement of contracts with fairness, recognizing that unforeseen events can drastically alter the nature of performance.
