Understanding Pre-Contractual and Post-Contractual Supervening Impossibility: A Deep Dive

Understanding Pre-Contractual and Post-Contractual Supervening Impossibility: A Deep Dive

In contract law, the principle of supervening impossibility comes into play when, due to unforeseen events, it becomes impossible for a party to fulfill their obligations under a contract. These events can occur before the contract is formed (pre-contractual impossibility) or after the contract has been formed (post-contractual impossibility). Understanding these concepts is crucial for anyone entering into contracts, as they determine whether a party can be excused from performing their obligations.

In this blog post, we will break down pre-contractual supervening impossibility and post-contractual supervening impossibility in simple terms, using real-life examples, legal explanations, and case references to provide a complete understanding.

 

What is Supervening Impossibility?

Supervening impossibility refers to situations where, after a contract is formed or even before its formation, an unexpected event occurs that makes it impossible for one or both parties to perform their contractual obligations. The event that causes the impossibility must be something that was beyond the control of either party and could not have been foreseen or prevented.

Key Features of Supervening Impossibility:

1. Unforeseen Event: The event must be unforeseeable at the time the contract was made.
2. Impossibility of Performance: The event makes the performance of the contract physically or legally impossible.
3. No Fault of Either Party: Neither party is at fault for the occurrence of the event.

 

Pre-Contractual Supervening Impossibility

Pre-contractual supervening impossibility happens before a contract is formed. This occurs when the subject matter of the contract or the performance becomes impossible before the agreement is made, preventing the formation of a valid contract altogether.

Example of Pre-Contractual Supervening Impossibility:

Imagine a situation where Company A in Bangladesh agrees to buy a rare machine from Company B, based on their offer. Before the two companies sign the contract, Company B’s factory is destroyed in a fire, and it is no longer able to produce the machine. Here, the subject matter of the contract (the machine) no longer exists, making the contract impossible to perform.

In this case, pre-contractual impossibility prevents the formation of the contract, as the subject matter (the machine) has been destroyed before any agreement was made. Since the event occurred before the contract was signed, neither party is bound by the contract.

Legal Implications in Bangladesh:

In Bangladesh, Section 56 of the Contract Act, 1872 governs impossibility of performance. The section states that if the performance of the contract becomes impossible due to an unforeseen event before the contract is made, the contract is considered void. In our example, Company A would not be able to force Company B to provide the machine because it no longer exists. Thus, the contract cannot be formed.

 

Post-Contractual Supervening Impossibility

Post-contractual supervening impossibility occurs after a contract has been formed. This happens when an event occurs after the contract has been signed that makes it impossible for one or both parties to fulfill their contractual obligations.

Example of Post-Contractual Supervening Impossibility:

Consider a situation where a contractor in Bangladesh enters into a contract with a client to build a commercial building. After the contract is signed, a severe earthquake strikes the region, causing a shortage of materials and damaging the construction site. Due to the damage and lack of materials, the contractor can no longer complete the project as agreed.

In this case, the event (the earthquake) is an unforeseen situation that makes the contractor's performance impossible. Even though the contract was validly signed, the contractor is excused from their obligations due to post-contractual supervening impossibility.

Legal Implications in Bangladesh:

Under Section 56 of the Contract Act, 1872, the contract would become voidable if the performance becomes impossible after the agreement is made. However, there are exceptions such as when the contract has been explicitly modified or has a force majeure clause, which would excuse a party from performance due to certain events.

In this case, the contractor may be excused from completing the project because the event (earthquake) made it impossible to perform the contract, and they are not at fault for the event.

 

Legal Framework Around Supervening Impossibility

1. Bangladesh

In Bangladesh, the Contract Act, 1872 is the key law that governs supervening impossibility. According to Section 56, a contract becomes void when its performance becomes impossible due to unforeseen events that are not due to the fault of the parties involved.

• Pre-contractual Impossibility: If, before the contract is formed, the subject matter is destroyed or rendered impossible to obtain, the contract cannot be formed.
• Post-contractual Impossibility: If, after the contract is formed, a party can no longer perform due to an unexpected event, the contract may be voidable under the doctrine of supervening impossibility.

2. India

India follows similar principles under the Indian Contract Act, 1872, specifically in Section 56, which addresses both pre-contractual and post-contractual impossibility. In Satyabrata Ghose v. Mugneeram Bangur & Co. (1954), the Supreme Court held that a contract could be discharged due to impossibility or frustration, similar to the principles in Bangladesh.

3. United Kingdom

In the United Kingdom, the Frustrated Contracts Act, 1943 applies. The doctrine of frustration allows for the termination of contracts where performance becomes impossible due to unforeseen events, such as a natural disaster or government intervention.

• Krell v. Henry (1903): This case established that a contract can be frustrated if its fundamental purpose is destroyed by an unforeseen event.

4. United States

In the United States, the Uniform Commercial Code (UCC) governs commercial contracts. Under UCC Section 2-615, a contract may be excused if performance becomes impractical due to unforeseen events beyond the control of the parties.

• The Doctrine of Impracticability: This doctrine is applied when an unforeseen event occurs after the contract is formed, making performance extremely difficult or impossible. Similar to supervening impossibility, it allows parties to be excused from performing their obligations.

Key Differences Between Pre-Contractual and Post-Contractual Impossibility

The concepts of pre-contractual impossibility and post-contractual impossibility both deal with the inability to perform a contract due to unforeseen events. However, these two types of impossibility differ in terms of timing, legal implications, and the status of the contract. Let’s look at these differences in detail, point by point:

 

1. Timing of Impossibility

• Pre-Contractual Impossibility:
• Occurs before the contract is signed or finalized.
• The impossibility happens prior to the formation of the agreement, meaning that one or both parties cannot even enter into the contract because the subject matter or the performance becomes impossible.

Example: If a rare piece of equipment that a company wants to purchase gets destroyed in a fire before the purchase agreement is signed, the contract cannot be formed.

• Post-Contractual Impossibility:
• Occurs after the contract has already been signed and the parties have entered into the agreement.
• The impossibility arises after the contract is formed, but something unforeseen happens that prevents performance of the contract or makes it impossible for one party to perform their obligations.

Example: After signing a construction contract, an earthquake destroys the construction site, making it impossible for the builder to complete the work.

2. Effect on the Formation of the Contract

• Pre-Contractual Impossibility:
• Prevents the formation of a contract altogether.
• Since the event causing impossibility happens before the contract is formed, the contract is considered void from the outset.
• There is no valid contract to begin with, as it was never possible to agree due to the impossibility.

Example: A company offers to sell a unique artwork, but the artwork is lost before the contract is finalized. The contract cannot be formed because the subject matter no longer exists.

• Post-Contractual Impossibility:
• Does not prevent the formation of the contract but excuses performance under the contract.
• The contract is initially valid and legally binding, but performance becomes impossible due to an unforeseen event. The contract may be considered void or voidable, depending on the circumstances, but it was valid at the time it was made.

Example: A film producer signs a contract with an actor to perform in a film, but the actor is injured severely in an accident after the contract is signed. The contract is still valid but performance is excused.

 

3. Legal Consequences

• Pre-Contractual Impossibility:
• No contract exists legally. Since the subject matter or performance was impossible even before the contract was formed, no legal obligations arise.
• Both parties are free from any liability because the contract is considered non-existent.

Example: If the goods offered in a sale contract are destroyed before the agreement is made, no contract is formed, and neither party can claim breach of contract.

• Post-Contractual Impossibility:
• The contract exists and is legally binding until the impossibility occurs. When an unforeseen event makes performance impossible after the contract is formed, the affected party may be excused from further performance.
• The contract may be voidable, and both parties may be relieved from obligations depending on the legal system and terms of the contract (force majeure clauses, etc.).

Example: A supplier who agrees to deliver goods can be excused from performance if their warehouse is destroyed in a fire after the contract is formed. However, the contract still existed and was binding until that point.

 

4. Applicability of Force Majeure Clauses

• Pre-Contractual Impossibility:
• Force majeure clauses do not apply because the contract has not been formed yet.
• Since there is no contract to begin with, the issue of a force majeure clause is irrelevant in this case.

Example: A company cannot use a force majeure clause if they fail to form a contract due to the destruction of the goods before the contract is signed.

• Post-Contractual Impossibility:
• Force majeure clauses may be applicable and often provide an excuse for non-performance when unforeseen events occur that make performance impossible after the contract is signed.
• If such clauses are included in the contract, the affected party may be excused from fulfilling the contract based on the terms of the force majeure clause.

Example: A business that has agreed to deliver goods to a customer may be excused from non-performance due to a force majeure clause if an unexpected natural disaster prevents delivery.

 

5. Impact on Contractual Obligations

• Pre-Contractual Impossibility:
• Since no contract is formed due to the impossibility, no contractual obligations arise.
• Both parties are free from any future commitments related to the proposed contract.

Example: If an offer to sell land is made, and before the contract is signed, the land is destroyed in a flood, the contract cannot be formed, and there are no obligations between the parties.

• Post-Contractual Impossibility:
• The obligations that were valid at the time the contract was formed remain effective until the impossibility occurs.
• After the impossibility, the parties are no longer obligated to perform, but they may still be required to address any issues related to partial performance, such as refunding money or returning goods.

Example: If a construction contract is signed and the contractor cannot complete the work due to an unexpected disaster, the contractor might not be required to complete the project but may be responsible for paying any damages caused by delay or failure to perform.

 

6. Jurisdictional Differences

• Pre-Contractual Impossibility:
• In countries like Bangladesh, India, and the UK, pre-contractual impossibility generally results in no contract being formed, and thus, the doctrine of frustration or impossibility does not apply because the contract does not exist in the first place.
• Post-Contractual Impossibility:
• In most jurisdictions, including Bangladesh, India, and the US, if performance becomes impossible after the contract has been formed, the doctrine of frustration (in the UK) or impossibility of performance (under Section 56 of the Contract Act, 1872 in Bangladesh) can excuse the parties from their obligations.

Pre-contractual and post-contractual supervening impossibility are important concepts in contract law that address situations where unforeseen events make contract performance impossible. The key difference between the two lies in the timing of the impossibility (before or after contract formation) and the legal consequences that follow.

• Pre-contractual impossibility prevents the formation of a contract because the subject matter of the contract is no longer available or feasible.
• Post-contractual impossibility allows the contract to remain valid initially, but an unforeseen event may excuse the affected party from fulfilling their obligations after the contract has been formed.

Understanding these distinctions is critical in contract formation and enforcement, particularly when unforeseen events impact the ability to perform contractual duties. Whether you are in Bangladesh, India, or any other jurisdiction, knowing how supervening impossibility works can help mitigate legal risks and ensure fair treatment for all parties involved in a contract.

Conclusion

Understanding pre-contractual and post-contractual supervening impossibility is essential for anyone involved in contracts, whether in business or personal transactions. These principles safeguard parties from being held accountable for fulfilling contracts when unforeseen and uncontrollable events make performance impossible. Whether you're in Bangladesh, India, or the UK, the laws surrounding supervening impossibility are meant to ensure fairness when external factors interfere with contract performance.

In Bangladesh, the Contract Act, 1872 provides a clear legal foundation to excuse performance due to unforeseen impossibilities, ensuring that neither party is unfairly burdened by circumstances beyond their control. Always consider the potential for supervening impossibility when entering into a contract, and ensure that your agreements are well-drafted to account for such contingencies, possibly by including force majeure clauses to protect both parties.

 

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