Doctrine of Supervening Impossibility

The doctrine of supervening impossibility, also known as the doctrine of frustration, addresses the enforceability of contracts in the event of unforeseen incidents. This legal principle, rooted in the maxim ‘Lex non cogit ad impossibilia’ or “law does not compel the impossible,” is an important aspect of the law of contracts under Section 56 of the Indian Contract Act, 1872.

What is Doctrine of Supervening Impossibility?

The doctrine of supervening impossibility is invoked when unforeseen circumstances render a contract’s performance impossible, through no fault of the involved parties. Grounded in the maxim “Lex non cogit ad impossibilia,” meaning the law does not compel the impossible, this doctrine applies under conditions like war, acts of God, law amendments or the death of a party.

For the doctrine to be applicable, the event causing impossibility must be one that the parties could not have foreseen at the contract’s inception. Moreover, the unforeseen event should not be attributable to either party’s fault and the contract’s fulfillment under such conditions would diverge significantly from the original agreement.

Applicability of the Doctrine of Supervening Impossibility

The applicability of the doctrine of supervening impossibility, also known as the doctrine of frustration, is constrained by specific rules and limitations, ensuring its use is justified and appropriate:

• Presumed Intentions of the Parties: The doctrine relies on what the parties presumably intended when the contract was formed. It does not allow for implied conditions that contradict the contract’s express terms.
• Fault of the Parties: If one or more parties are at fault for the event leading to the contract’s impossibility, the doctrine cannot be invoked.
• Exclusion of Commercial Impossibility: The doctrine does not cover commercial impossibility. Difficulties in profitability or market changes that make the contract less desirable but still performable do not qualify for this doctrine.
• Unmet Intentions or Terms: This doctrine only applies when the fundamental intentions or terms agreed upon by both parties cannot be fulfilled due to the unforeseen event.
• Multiple Performance Methods: If the contract can be fulfilled through alternative methods despite the unforeseen event, the doctrine of supervening impossibility does not apply.

The Doctrine of Supervening Impossibility in Indian Law

The doctrine of supervening impossibility, also known as the doctrine of frustration, plays a significant role in the Indian Contract Act, 1872, particularly under Section 56. This legal provision outlines the circumstances under which contracts are discharged due to subsequent impossibilities, ensuring fairness and justice in contractual obligations when unforeseen events occur.

Overview of Section 56

Section 56 of the Indian Contract Act divides the concept of impossibility into three distinct parts:

Initial Impossibility

This aspect addresses contracts that are void ab initio, meaning they are impossible from the beginning. Examples include contracts to perform inherently impossible tasks, such as reviving the dead or finding treasure through magic. For instance, if a person already married to one individual contracts to marry another, such a contract is null from the outset due to existing marital obligations.

Supervening Impossibility or Frustration

This is the core of the doctrine of frustration, which renders a contract void if it becomes impossible or unlawful due to an event that occurs after the contract has been formed and which was not foreseen by the parties. This could include scenarios such as the insanity of a party expected to perform a personal act or geopolitical events like war that prevent the fulfillment of a contract.

Compensation for Non-performance

If a party knew or should have known with reasonable diligence that performance might become impossible or unlawful and the other party was unaware, the informed party is liable to compensate the other for any losses incurred due to non-performance.

Illustrative Examples of Supervening Impossibility

• Mental Incapacity: If parties contract to marry and one party becomes insane before the marriage, the contract is voided due to the incapacity to consent.
• Geopolitical Conflicts: A contract for cargo delivery at a foreign port becomes void if the promisor’s government declares war on that country, making performance illegal or impossible.

Legal Implications

Under Indian law, a contract is considered frustrated when:

• The performance has become impossible.
• The impossibility was unforeseeable and could not have been prevented.
• The impossibility arose without any fault or negligence of the promisor.

Section 65: Consequences of Void Contracts

Section 65 deals with the aftermath when a contract becomes void, either initially or subsequently. It stipulates that any benefit derived under such a contract must be returned or compensated for. For example, if A contracts to deliver 100 maunds of rice to B but only manages 50 due to a natural disaster, B must pay for the 50 maunds received, despite the contract’s partial frustration.

Case Laws on Doctrine of Supervening Impossibility

The application of the doctrine of supervening impossibility is well-illustrated through notable case laws that clarify its boundaries and implications:

Satyabrata Ghose v. Mugneeram Bangur and Co. (1953)

In Satyabrata Ghose v. Mugneeram Bangur and Co., the Supreme Court addressed a situation where the defendant had committed to developing a plot of land by constructing roads and drains before selling it to the plaintiff. However, a part of the land was requisitioned for military use. The Court ruled that the contract did not become impossible to perform as per Section 56 of the Indian Contract Act, since the requisition affected only part of the land, not preventing the overall development and subsequent transfer of the property.

Sushila Devi v. Hari Singh (1971)

This case involved a property lease contract that became complicated when the leased property, located in Gujranwala, became part of Pakistan after the partition of India. The Supreme Court expanded the interpretation of ‘impossibility’ under the Act, suggesting that it encompasses not only practical impossibility but also impracticability concerning the object and purpose of the contract. The court recognised that the partition, a significant supervening event, fundamentally disrupted the contract’s basis, thus leading to its frustration.

Types of Supervening Impossibility

Contract becomes frustrated once the state of things changes or ceases to exist. This can occur in scenarios where specific conditions assumed by both parties at the time of the contract no longer hold true, fundamentally altering the nature or the execution of the agreement.

Destruction of the Subject Matter

This type occurs when the actual subject matter of the contract is destroyed or ceases to exist without the fault of either party. An illustrative case is Taylor v. Caldwell, where the destruction of a hall meant for a concert rendered the contract void as the performance venue no longer existed.

Death, Illness or Personal Incapacity

Contracts depending on the personal skills or presence of an individual are discharged if that individual dies, falls ill or becomes incapacitated before fulfilling their role. For instance, in Robinson v. Davison (1871), a contract was frustrated when an artist fell ill and could not perform at a concert, highlighting the reliance on personal capacity in contractual obligations.

Change of Law

Contracts can also be frustrated by changes in law that occur after the agreement was made, making the performance illegal. An example is Firm Bachhraj Amolakchand v. Firm Nand Lal Sitaram (1962), where legal restrictions on grain exports introduced after the contract was signed led to its discharge.

Declaration of War

A contract becomes void if a war is declared between the home country of one party and the country of the other party. This was seen in Metropolitan Water Board v. Dick Kerr & Co. Ltd. (1917), where a contract for construction was nullified due to war, which prevented the completion of the work as initially planned.

Non-existence of a Particular State of Things

If a contract assumes the existence of certain conditions which later change or disappear, the contract may be frustrated. This type of supervening impossibility acknowledges that the underlying assumptions that formed the basis of the contract are no longer valid, thereby excusing the parties from fulfilling their contractual obligations.

Exceptions to the Doctrine

While the doctrine of supervening impossibility provides a mechanism for discharging contractual obligations due to unforeseen events that render performance impossible, there are specific exceptions where this doctrine does not apply. These exceptions ensure that parties do not escape their contractual duties under the pretext of impossibility when the circumstances do not truly merit such an exemption.

Commercial Impossibility

The doctrine of supervening impossibility does not encompass commercial or economic difficulties. If the performance of a contract becomes less profitable or even results in a loss due to market fluctuations or increased costs, this does not constitute legal impossibility.

Such scenarios are considered risks that businesses inherently bear. For example, a sudden increase in the cost of raw materials does not allow a manufacturer to legally abstain from fulfilling a contractual obligation to supply goods at an agreed-upon price.

Self-induced Impossibility

Impossibility that arises from the actions or negligence of a party cannot be used as a defense under this doctrine. If a party fails to perform due to their own oversight or lack of diligence, they remain liable for the breach.

An instance of this is when a lorry owner fails to renew his vehicle’s license and, as a result, cannot legally perform a delivery contract. Since the failure to renew the license is a result of the owner’s negligence, the doctrine of frustration does not apply.

Inherent or Foreseeable Risks

Contracts that involve risks which can be anticipated do not qualify for discharge under the doctrine if those risks materialise. Parties entering into contracts in volatile industries or environments are expected to take into account the ordinary risks associated with their operations.

In the case of Lucky Bharat Garage Pvt Ltd v. South Eastern Coalfields Ltd. (2011), despite an unforeseeable riot, the carrier was held liable for damages to goods because protecting against such risks was part of the contractual duty.

Failure of a Third Party

A contract is not automatically frustrated if a third party, whose participation is important for the fulfillment of the contract, fails to perform. The primary party remains responsible for ensuring the contract’s fulfillment or for finding alternative solutions. For instance, if a supplier’s chosen manufacturer fails to produce the required goods, the supplier is still responsible for meeting the contractual obligations to the buyer.

Failure of One of Multiple Objects

When a contract involves several objectives or purposes, the failure to achieve one of these, while others remain attainable, does not frustrate the entire contract. This principle was illustrated in H.B. Steam Boat Company v. Hutton (1903), where despite the cancellation of a naval inspection due to the king’s illness, the contract was not deemed frustrated as the steamboat could still be used for its second purpose—sailing around the fleet.

Conclusion

The doctrine of supervening impossibility serves as a critical legal relief in contract law, providing a necessary escape hatch for parties bound by agreements that have become impossible to perform due to truly unforeseeable and extraordinary circumstances. It emphasises the importance of fairness and reasonableness in contracts, ensuring that parties are not unduly penalised for conditions beyond their control.