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PRINCIPLES RELATING TO FORCE MAJEURE- CURRENT CRISIS OF COVID19

April 10, 2020

Laws involved: Contract Act,1872 and Transfer of Property Act,1882 Contract Act, 1872 S.32 ENFORCEMENT OF CONTRACTS CONTINGENT ON AN EVENT HAPPENING.—Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void. Section: 56 Agreement to do impossible act.—An agreement to do an act impossible in itself is void. Contract to do an 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. Section: 62 EFFECT OF NOVATION, RESCISSION, AND ALTERATION OF CONTRACT.—If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. Section:64 CONSEQUENCES OF RESCISSION OF A VOIDABLE CONTRACT.—When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received. Sale of Goods Act ,1930 S.57 DAMAGES FOR NON-DELIVERY.—Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. 58. SPECIFIC PERFORMANCE.—Subject to the provisions of Chapter II of the Specific Relief Act, 1877 (1 of 1877), in any suit for breach of contract to deliver specific or ascertained goods, the Court may, if it thinks fit, on the application of the plaintiff, by its decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The decree may be unconditional, or upon such terms and conditions as to damages, payment of the price, or otherwise, as the Court may deem just, and the application of the plaintiff may be made at any time before the decree. 59. REMEDY FOR BREACH OF WARRANTY.— (1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may— (a) set up against the seller the breach of warranty in diminution or extinction of the price; or (b) sue the seller for damages for breach […]

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COVID19 AND FORCE MAJURE CLAUSE NOTIFIED CONCERNING INDIA

March 29, 2020

In wake of Wuhan Virus Government of India notified following Office Memorandum. No. F. 18/4/2020-PPD Government of India Ministry of Finance Department of Expenditure Procurement Policy Division Subject: Force Majeure Clause (FMC) Attention is invited to para 9.7.7 of the “Manual for Procurement of Goods, 2017” issued by this Department, which is reproduced as under: A Force Majeure (FM) means extraordinary events or circumstance beyond human control such as an event described as an act of God (like a natural calamity) or events such as a war, strike, riots, crimes (but not including negligence or wrong-doing, predictable/ seasonal rain and any other events specifically excluded in the clause). An FM clause in the contract frees both parties from contractual liability or obligation when prevented by such events from fulfilling their obligations under the contract. An FM clause does not excuse a party’s non-performance entirely, but only suspends it for the duration of the FM. The firm has to give notice of FM as soon as it occurs and it cannot be claimed ex-post facto. There may be a FM situation affecting the purchase organisation only. In such a situation, the purchase organisation is to communicate with the supplier along similar lines as above for further necessary action. If the performance in whole or in part or any obligation under this contract is prevented or delayed by any reason of FM for a period exceeding 90 (Ninety) days, either patty may at its option terminate the contract without any financial repercussion on either side. A doubt has arisen if the disruption of the supply chains due to spread of corona virus in China or any other country will be covered in the Force Majeure Clause (FMC). In this regard it is clarified that it should be considered as a case of natural calamity and FMC may be invoked, wherever considered appropriate, following the due procedure as above. (Kotluru Narayan eddy) Deputy Secretary to the Govt. of India ANALYSIS OF CLAUSE IN THE ABOVE MEMORANDUM AND COMMENTARY: Above Memorandum came in wake of Lockdown of country due to COVID19. Which is known as Chinese Virus. Above Notification is unique in nature includes natural calamity and war , but not include negligence or wrong doing. Law- Contract Act,1872 Agreement to do impossible act.—An agreement to do an act impossible in itself is void. Contract to do an 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. WHAT IS FORCE MAJURE        FORCE MAJURE During the pendency of the contract/ purchase order if the performance in whole/ part by […]

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