Doctrine of Commercial Impracticability

Introduction

Commercial Impracticability, in the context of contract law, signifies that the execution of a contractual obligation has become unfeasible and cannot be reasonably achieved. In simpler terms, it implies that the task at hand, as outlined in the contract, has become either exceedingly challenging or outright impossible to carry out. This doctrine has its origins in the English common law concept known as the "doctrine of impossibility." In the early iterations of common law, English courts were reluctant to release a party from a contract obligation even if an event occurred after the contract was formed, which adversely affected one party's ability to fulfill their obligations.

Roots in the Uniform Civil Code and Indian Contract Act

The concept can also be found in the Uniform Commercial Code, specifically under Section 615 of Article 2 of the said Code. By virtue of the said provision, a seller is excused from performance if such performance has become impracticable (as opposed to impossible) because of unforeseen circumstances which were not contemplated by either parties while entering into the contract. It is important to note that establishing this defense can be complex primarily because it relies on subjective factors such as perceptions, expectations, and an understanding of the circumstances, rather than objective facts.

The court will assess these elements in conjunction with the contract's specifics to determine the parties' obligations under the contract. If the court determines that performance is indeed impracticable, it may render the contract void, allowing both parties to walk away from it without incurring any liability.

In the context of Indian law, the concept of impracticability falls under Section 56 of the Indian Contract Act, 1872 which states that "An agreement to do an impossible act is void".?It effectively encompasses all the principles and regulations associated with the 'doctrine of frustration' within Section 56. The doctrine of frustration represents a legal concept specifically addressing the discharge of a contract due to the impossibility of its performance and as such provides for a broader ambit than the doctrine of commercial impracticability.?

Application in Law

This legal doctrine is invoked when unforeseen circumstances arise that would impose significant burdens on the party obligated to perform under the contract. In a breach of contract claim initiated by the plaintiff against the defendant, the defendant may use this doctrine in his defence as one of the excuses that renders performance of obligations on his part unfeasible and/or impractical. In such instances, it falls upon the judge to determine whether the occurrence in question genuinely rendered performance commercially impracticable.

Some of the examples of situations leading to commercial impracticability include:

1. Natural disasters
2. Weather-related events (e.g., floods, hurricanes, tornadoes, earthquakes)
3. Injury to the party obligated to perform
4. Death or disability of a third party involved in the contract

Case Laws

A new standard for determining impossibility/impracticability, and subsequently excusing performance, was introduced to keep up with the ever changing times in the case of Mineral Park Land v. Howard 1916 Cal. 529. The principle articulated in this case was that "something is considered legally impossible when it is not feasible, and something is deemed impracticable when it can only be accomplished at an excessive and unreasonable cost."

Before this landmark decision, the court had never granted relief from performance obligations solely based on financial hardship or the fact that a contract had become unprofitable. Nevertheless, for the first time, the court acknowledged that a contract that could only be fulfilled at an exorbitant cost was akin to a contract whose subject matter had been completely destroyed.

Another notable legal precedent involving the application of the doctrine of Commercial Impracticability in American courts is the case of Aluminum Co. of America v. Essex Group Inc. 499 F. Supp. 53 (W.D. Pa. 1980) In this case, the court established the principle that that?"Where, at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary."

Conclusion

Commercial impracticability is used as an exception to the general principle of contract sanctity. It arises when unexpected events make contract performance unduly burdensome or impossible. To apply this doctrine, the triggering event must not have been a fundamental assumption when the contract was formed, and the unforeseen incident must genuinely render performance impracticable.