Disrupted Mercantile Contracts: Not Surely Act of God

The cyclical disruption in the economic sector has begun to show its early signs where people are seeking active consultations over frustrating contracts of mercantile nature due to the abrupt disruption caused by the coronavirus lockdown.

The basis of all commercail/ mercantile transactions is a basic understanding between the parties where they follow a set of mutually agreeable practices and tenets that guide their association. All such agreements stipulate terms upon which the parties to a contract guide their respective behaviours which leads to the fulfillment of obligations arising out of the contract.

In today’s complex mercantile order the contractual obligations have not ol become more stringent and strict the enforcement mechanisms have also shifted from a balanced approach of the earlier years to a more aggressive aproach which proves detrimental in most cases to the parties seeking remedies in terms of performance or comepnsation in the event of frustration of the contract or breach of contract.

The Government of India and other state governments were wise enought of to declare the “COVID-19” pandemic and the lockdown that followed an act covered under the ‘force majeure’ clause, which shifts the entire blame of frustraion/ breach of a contract on a greater for at play.

Force majeure clause simply comes to use when there is any unforeseen event which is specifically not an outcome of any human agency at play or in the event of a war, it is more popularly known as Act of God. Yes, the same movie starring Paresh Rawal Oh My God, where he sues the Gods and religious institutions for compensating for their act, yes that’s the same situation.

Contracts that come under the loop of the current lockdown fiasco are simple contracts inluding the one of tenancies to services and insurance to employment contracts and complex business agreements. It is a natural outcome of the lockdown that neither the public sector undertakings/ governments or the private enterprises/ individuals shall be able to service their respective obligations in the backdrop of the disruption in the flow of cash and business transactions coming to a halt! All the contracts will be pushed into a scenario of forced breach.

The post-lockdown period will witness a rise in the cases arising out of frustration/ breach of contract, and even the alternate dispute resolution mechanisms will fall short of providing a solution to the rising number of contract litigations.

The only way out will be a possible will be to offer a proposed dead-line where all the agreements shall stand performed, and building of mutual trust between the parties. Force majeure clause might lead to abrupt frustration of contracts yet, in the near term all the contracts will land up in a position of being serviced.

Therefore, supplementary contractual obligations which mean altering or novation of the earlier contract might also be of some service, while we build consensus among the society to help each other enforce the contracts, since the COVID-19 outbreak was beyond human control, but whatever happens post the lockdown is exclusively human nature and goodwill at play.