A Project

On
THE CONCEPT OF NO-FAULT LIABILITY IN CONTRACTS FOR
THE SALE OF GOODS

[Submitted as a partial fulfillment of the requirement for B.A.LL.b (Hons.)

5 year integrated course]

Session: 2020-21

Submitted On: "30 June 2021"

Submitted By: Submitted To:

Utkarsh Sachora Dr. Arti Sharma

Roll No. - 91 Associate Professor

Semester- IV Section- B

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 Declaration of Originality

I, Utkarsh Sachora, hereby declare that this project titled "THE CONCEPT OF NO-FAULT
LIABILITY IN CONTRACTS FOR THE SALE OF GOODS" is based on the original research work
carried out by me under the guidance and supervision of "Dr. ARTI SHARMA".
The interpretation put forth is based on my reading and understanding of the original texts. The
books, articles and websites etc. which have been relied upon by me have been duly acknowledged at
the respective places in the text.
For the present project which I am submitting to the university, no degree or diploma has been
conferred on me before, either in this or in any other university.

Date: 30\06\2021 Signature

Name: Utkarsh Sachora

Roll No.- 91
Semester- IV Section- B

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 CERTIFICATE

Dr. ARTI SHARMA Date: 30\07\2021

Associate Professor
University five year law college
University of Rajasthan, Jaipur

This is to certify that Utkarsh Sachora student of semester (IV), section (B) of University
Five Year Law college, University of Rajasthan has carried out project title "THE CONCEPT
OF NO-FAULT LIABILITY IN CONTRACTS FOR THE SALE OF GOODS" under my
supervision. It is an investigation of a minor research project. The student has completed
research work in stipulated time and according to norms prescribed for the purpose.

Supervisor

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 ACKNOWLEDGEMENT

I have written this project titled, "THE CONCEPT OF NO-FAULT LIABILITY IN

CONTRACTS FOR THE SALE OF GOODS", under the supervision of, Dr. ARTI SHARMA
Faculty of University Five Year Law College, University Of Rajasthan, Jaipur. Her valuable
suggestions herein have not only helped me immensely in making this work but also in developing
an analytical approach in this work.
I found no words to express my sense of graduate for Director SANJULA THANVI for
her constant encouragement at every step.
I am extremely grateful to librarian and library staff of the college for the support and
cooperation extended by them from time to time

UTKARSH SACHORA
 TABLE OF CONTENTS

CHAPTER-1 ....................................................................................................................................... 6

INTRODUCTION ......................................................................................................................... 6

CHAPTER- 2 ...................................................................................................................................... 7

APPROACH TO THE CONCEPT OF FAULT......................................................................... 7

1. The Common Law Scenario .................................................................................................. 7

2. The Civil Law Scenario ......................................................................................................... 8

CHAPTER- 3 ...................................................................................................................................... 9

NO-FAULT LIABILITY IN THE INDIAN CONTEXT .......................................................... 9

1. The Concept of Impossibility and Frustration And Contrasts With The CISG:
Allocation Of Fault ........................................................................................................................ 9

2. Non Discharge of Obligations under Frustration ............................................................. 11

3. Force Majeure and Impossibility ....................................................................................... 11

4. Restitution and Damages under Section 56: The Difference with CISG ........................ 12

CHAPTER- 4 .................................................................................................................................... 14

CONCLUSION ............................................................................................................................ 14
 CHAPTER-1
INTRODUCTION
The concept of no-fault liability has its roots in the law of torts. However, this concept has been
intricately associated with the modern laws of contracts and sale of goods. It basically means that a
party can be held liable irrespective of whether it was at fault or not when it fails to perform its
obligations under the contract. The UN Convention on Contracts for the International Sale of
Goods, 1980 (CISG) considers no-fault liability as an inherent principle under Article 79 which
deals with exemption of a party. Similarly the Indian Contract Act, 1872 under Sections 56 and 65
lay down in express terms that a party needs not be at fault for it to be held liable for non-
performance of its obligations under the contract. Essentially having its origin in common law, no-
fault liability is considered to be a vital part of compensation systems concerning sales contracts
and is designed to overcome alleged deficiencies of fault based compensation systems prevalent in
civil law systems. The purpose of this paper is to analyze the fairness and the rationale of no-fault
liability in the context of sale of goods both in India as well as in the international context and its
relevance as regards determining appropriate remedies during an event of force majeure or a
frustration of the contract. Apart from presenting a picture of the common law and civil law
systems on the question of fault analysis, this paper will also present an in depth analysis of the
relevant provisions in the CISG and the Indian laws on the concept of no-fault liability.
 CHAPTER- 2
APPROACH TO THE CONCEPT OF FAULT

Common law and civil law systems differ a great deal when it comes to assessing the fault of a
party as regards non performance. Common law in principle treats every contract as containing a
guarantee: if the obligor breaches any of its obligations under the contract, the aggrieved party is
entitled to claim damages, regardless of a fault by the non-performing party1. The obligor is only
exempt from performance if there is an express exemption clause in the contract exempting him
from certain obstacles that may arise during the course of performance. Therefore, it is no
defense for a party to say that it has tried its best to perform under the contract and that it was not
its fault that it could not perform, as nothing short of performance is the required standard.

1. The Common Law Scenario

Law recognizes certain instances where the non-performing party, although strictly liable in
principle, is nevertheless exempted from liability for a breach of contract. This is primarily
achieved by implying limits of the non-performing party's contractual guarantee in the contract2.
Where obstacles to performance arise subsequently to the contract, the non-performing party
may be relieved from its guarantee liability on the basis of frustration of the main purpose of the
contract3.

The obligor’s failure to perform may therefore not be excused even though the obligor is not at
fault in the sense of want of care or diligence. As pointed out by Treitel4:

“Although deliberate and careless conduct is thus generally sufficient to prevent a party from
relying on the doctrine of discharge, it is not necessary for this purpose. It has, for example, been
held that a seller whose goods are taken in execution, and who therefore cannot deliver them
under a contract of sale, is not excused as he is considered to be at ‘fault’5. Yet the execution
may be due to his inability to perform a previous contract because his source of finance or of
generic goods has failed without any fault on his part.

1
ZWEIGERT, KONRAD & HEIN KÖTZ (Tony Weir trans.). AN INTRODUCTION TO COMPARATIVE LAW.
503 (3rd ed Oxford 1998)
2
DROBNIG, ULRICH, General Principles of European Contract Law, in INTERNATIONAL SALE OF GOODS:
DUBROVNIK LECTURES (Sarcevic & Volken. ed., 1986)
3
SIR WILLIAM REYNELL ANSON, ANSON’S LAW OF CONTRACT (J. Beatson ed., 28 th Edition, Oxford
University Press, 2008); Taylor v. Caldwell (1863) 3 B.&S. 826;
4
TREITEL GUENTER, THE LAW OF CONTRACT 35 (11th ed., Sweet and Maxwell, London, 2003).
5
Western Drug Supply etc. & Co. v. Board of Administrators of Kansas, 187 p. 701 (1920).
2. The Civil Law Scenario

Many civil law systems endorse the principle that breach of contract presupposes fault of the non-
performing party6. Thus conceptually, the Anglo-American principle of strict liability for breach of
contract is fundamentally opposed to the traditional civil law approach. However, if the situation is
examined more closely, the opposition between these two basic approaches is considerably
mitigated by concessions on both sides.
Under the objective standard of negligence, the obligor’s conduct is not to be assessed by reference
to its own capabilities, but to the standard of care which generally prevails in its trade or
profession7. The consequence of such an objective standard is that to a very large degree, the
obligor may only succeed in proving that it is not at fault if there is an exemption for non
performance due to a force majeure event or interference by the obligee. An important limitation of
the fault principle lies in the fact that the obligor usually bears the evidentiary burden of proving
the absence of fault. As a result, fault is presumed, so that the obligee may limit itself to proving the
breach of an obligation, damages and a sufficient causal link between the breach and the alleged
damages8. Most civil law systems allow considerations of equity and good faith to influence
whether performance is excused due to hardship. The French doctrine of imprevision and the
German doctrine of “Wegfall der Geschaeftsgrundlage” allow for the readjustment of the contract
based on changed economic circumstances9.

6
French Civil Code Art 1147; Swiss CO Art 97(1); Italian Codice Civile Art. 1218; German BGB §§ 280(1), 276(1).
7
JONES, GARETH H. & PETER SCHLECHTRIEM. Breach of Contract (Deficiencies in a Party's Performance) in
INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW 146 (Vol. VII (Contracts in General), Chapter
15. Tübingen, 1999)
8
CHRISTOPHE BRUNNER, FORCE MAJEURE AND HARDSHIP UNDER GENERAL CONTRACT
PRINCIPLES 64 (Kluwer Law Publishers, The Hague, 2009)
9
NAGLA NASSER, SANCTITY OF CONTRACTS REVISITED: A STUDY IN THE THEORY AND PRACTICE
OF LONG-TERM INTERNATIONAL COMMERCIAL TRANSACTIONS 199 (1995)
 CHAPTER- 3

NO-FAULT LIABILITY IN THE INDIAN CONTEXT

1. The Concept of Impossibility and Frustration and Contrasts With The CISG: Allocation
Of Fault
India being a common law country follows the concept that non-performance does not require a
fault of the non-performing party. The common law doctrine of no-fault liability is followed in
letter and spirit in India. In India, the exemption from force majeure excuse is not defined as
something where there was an ‘absence of fault’, of a party. India is not a signatory to the CISG
and the principles applying as regards liability for non-performance of a party owing to an
impediment are somewhat different from that of the CISG. In CISG, the concept of an impediment
is something which is impossible to perform and in very rare cases can impracticability of
performance be taken into account. Such events should be beyond the control of the party and it is
impossible for it to overcome it. However, Section 56 of the Indian Contract Act, 1872 10, dealing
with an impossible act, provides that apart from the criteria laid down in the CISG as stated above,
it also includes frustration of the purpose of the contract. The CISG does not include or provide for
frustration of contract as a ground for claiming exemption under Article 7911.
Inherent impossibility and the doctrine of frustration are both contemplated for through the words
of Section 56. It provides that a contract to perform an act which after the contract was concluded
becomes impossible would be void. The question of impossibility of performance in most general
cases arises when there is a force majeure or an Act of God. The Indian Contract Act does not talk
in detail about an impossible impediment, rather it interchangeably uses the terms impossibility and
frustration. It can be presumed from the commentaries to Section 56 that all instances of
impossibility of performance due to some impediment results in a frustration of the contract. The
threshold here is absolute impossibility of performance and not impracticability of the performance
or any hardship which still does not frustrate the purpose of the contract as it can be practically
performed. However, in a situation where such impracticability is not foreseeable at all by either
party, it might lead to a frustration of the contract.

10
Indian Contract Act, § 56 (1872): Agreement to do impossible act - An agreement to do an act impossible in itself is
void. Contract to do 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.
11
NICHOLAS, BARRY, Impracticability And Impossibility In The U.N. Convention On Contracts For The
International Sale Of Goods, in THE INTERNATIONAL SALES: THE UNITED NATIONS CONVENTION ON
CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS, 5-1, 5-6 (Matthew Bender, Galstosn & Smit ed.,
1984)
In the landmark decision of Satyabrata Ghose v. Mugneeram Bangur & Co.12 the Supreme Court of
India has observed that even though various theories have been propounded regarding the juridical
basis of the doctrine of frustration, yet the essential idea upon which the doctrine is based is that of
the impossibility of performance of the contract. In fact the impossibility of performance and
frustration are often interchangeable expressions. The changed circumstances make the
performance of the contract impossible and parties are absolved from the further performance of it
as the subject matter for which the parties had contracted for has changed substantially. In the same
case, the Supreme Court also explained the term ‘impossible’ in Section 56. The Supreme Court
made it clear that unlike English law the word ‘impossible’ has not been used in the sense of
physical or literal impossibility. The performance of an act may be impracticable and useless from
the point of view of the object and the purpose which the parties had in view and if an untoward
event or change of circumstances totally upsets the foundation upon which the parties rested their
bargain, it can well be said the promisor is absolved from performing the same. In another case
Sushila Devi v. Hari Singh13 observed that the impossibility contemplated by section 56 of the
Contract Act is not confined to something which is not humanely possible. In this case, the plaintiff
sought to take on lease some properties for personal cultivation or sub-leasing them to others. The
properties were situated in Tehsil Gujranwala. As a consequence of the partition of India on August
15, 1947, Tehsil Gujranwala became a part of Pakistan. The Supreme Court, therefore, held that the
object became impossible because of the supervening events. Besides this, the terms of the
agreement between the parties relating to taking possession also became impossible of
performance.14

12
AIR 1954 SC 44: 1954 SCR 310.
13
AIR 1971 SC 1756: (1971) 2 SCC 288.
14
Ibid; See also Basanti Bastralya v. River Steam Navigation Co. Ltd., AIR 1987 Cal 271, 274.
 2. Non Discharge of Obligations under Frustration

In India, the general rule is that the impossibility of performance discharges the party of all its
obligations under the contract. This is in stark contrast to the CISG wherein impossibility does not
discharge the party of any obligation other than payment of damages. However there are some
situations where a contract would not be discharged by impossibility even though the supervening
events make its performance impossible if:
a) The contract is absolute and covers the frustrating event in its ambit15.

b) The contract makes full provision for a given contingency.

c) The impossible event was foreseeable to some degree by the parties to the contract16.

d) Where the event could have been foreseen with reasonable diligence.

e) If a portion of the contract becomes impossible or difficult to perform17.

f) If in spite of the supervening events, the object and purpose of the contract is not rendered useless
and it can be performed in accordance with the original intentions of the parties18.

3. Force Majeure and Impossibility

Many contracts expressly provide for performance to be excused, if rendered impossible by

unavoidable cause such as force majeure, vis major, acts of God, or the enemy. However, it has
been established that such a stipulation is ineffective, if uncertain. In such cases there is no fault of
the party leading up to its non performance but then the existence of a definite force majeure does
serve as a valid excuse for frustration of the contract under Article 56. Thus the concept of no-fault
liability to a certain extent again gets compromised with as regards force majeure is concerned as
all the remedies that a party has against a non-performing one is lost owing to frustration.
Where reference is made to force majeure, the intention is to save the performing party from the
15
Ganga Saran v. Firm Ram Charan Gopal AIR 1952 SC 9
16
Firm Rampratap Mahadeo Prasad v. Sasansa Sugar Works AIR 1964 Pat 250
17
Section 13 of the Specific Relief Act, 1963
18
Satyabrata Ghose v. Mugneeram Bangur & Co. (1954) SCR 310
 consequences of anything over which he has no control. A force majeure clause, as such a
stipulation is usually called, must be construed in each case with due regard to the nature and
general terms of the contract, and, in particular, with regard to the precise words of the clause.19
Where reference is made to force majeure, the intention is thus to save the performing party from
the consequences of anything of the nature stated above or over which he has no control.20
The expression force majeure has been construed extensively and the meaning has been held to
include things which are not normally included in the expression ‘vis major’ like strikes and break
down of machinery, shortage of supply owing to war, war-time difficulty with shipping, refusal of
export license, etc. The clause, in its proper construction, may also allow the court to take account
of the promisor’s obligations under other contracts (namely, seller’s commitment to other buyers)
despite the fact that as a rule, it is no excuse that contracts with third parties prevent the fulfillment
of the contract in question.

4. Restitution and Damages under Section 56: The Difference with CISG

The liability for paying damages is also another important distinction as far as the CISG and the
Act is concerned. Under CISG, the party seeking an exemption for impossibility of performance is
entitled to not pay damages to the other party while all the other remedies remain intact for the non-
breaching party. Normally under the doctrine of frustration, the remedy exercisable is the
restitution of any advantage that a party might have gained from the contract which after discharge
has to be nullified. However, the application of this principle could lead to injustice, i.e., unjust
enrichment. For example, parties were sometimes unable to recover the pre-payment which they
had made before the frustrating event. Similarly, where one party's performance under the contract
became due before the frustrating event, while that of the other was only to be rendered thereafter,
the former party would still have to perform, without getting what it had bargained for in return21.
However, Section 56 also contemplates a situation where in a contract may be void and yet
compensation may be payable by a person who is unable to perform it, whether the impediment is
impossibility or unlawfulness and whether the impediment existed at the time of the contract or
supervened.22 In the same case, the Court elucidated upon the principles of compensation as
follows:

19
Podar Trading Co Ltd, Bombay v Francois Tagher, Barcelona [1949] 2 All ER 62.
20
Serajuddin v State of Orissa AIR 1969 Ori 152; overruled on another point in Raisahab Chandanmull Indrakumar Pvt. Ltd. v
State of Orissa AIR 1972 Ori 40 (FB).
21
C. Scott Pryor, Clear Rules Still Produce Fuzzy Results: Impossibility in Indian Contract Law, 27 ARIZ. J INT'L & COMP. L. 1
(2010)
22
Firm of Hussainbhoy v. Hari Das, 1928 Sind 21: 105 IC 319.
(1) Section 56 contemplates that a contract may be void under its provisions and yet compensation may
be payable by the person who is unable to perform it, whether the impediment is impossibility or
unlawfulness, and whether the impediment existed at the time of the contract or supervened;
(2) The question whether compensation is payable or not depends not merely on:

(i) Whether it can, in an abstract manner, be said that the act agreed upon to be done is impossible (in
itself) or unlawful, but upon;
(ii) The knowledge as to the act being impossible or unlawful, as well as the promisor using reasonable
diligence in obtaining that knowledge; but this knowledge or absence of diligence must be coupled
with;
(iii) The want of knowledge on the part of the promise; and finally it depends upon;

(iv) Whether the promisor could have prevented that event which renders the act unlawful; in particular,
if the promisor knew, or with reasonable diligence might have known and the promise
did not know, that the act promised to be done was impossible or unlawful, compensation must be
made;
(3) The real question that must be considered, when it has to be determined whether s 56 is applicable
or not, in any suit, except where the contract is sought to be specifically enforced, is not whether
the contract was or became void, but whether the promisor has to make compensation for non-
performance;
(4) The substance of s 56 (namely the payment of compensation being excused) can only apply when
there is no contract to the contrary, and that is but stating in other words that s 56 must be read
(when possible) as an implied term in contracts.
 CHAPTER- 4
CONCLUSION

Despite the differences in the language and the meaning between Article 79 of the CISG and
Section 56 of the Contract Act, both seek to benefit sales transactions between parties. The object
of both the statutes is to determine liability of a party conclusively in cases of non-performance. In
the CISG, the presence or absence of fault of a party is not taken into account in case of
impossibility of performance. What is essential for holding a party liable, subject to certain
exceptions is that there should be a non- performance. In cases involving extreme financial
hardship or risks due to market changes, the contract Act’s “impracticability” doctrine has so far
offered occasional refuge while the CISG’s “impediment” doctrine has offered none. In India
impossibility of performance leads to frustration of the purpose for which the contract has been
entered into and it leads to a discharge of obligations of both parties under the contract. Thus as far
as the Indian Contract Act is concerned the fault of a party is not considered as well but he is not
made liable for the same as the parties are discharged from their respective obligations. Both the
systems take into account the role of foresee ability in determining whether a particular impediment
or an impracticable Act is liable for exemption or frustration as the case may be. Both the systems
are also unified on the fact that the impossible act should be beyond the control of the party and he
should have no possible means of overcoming it. The tests for impossibility are stricter in the CISG
than in the Indian Contract Act. Lastly, on the point of damages, the CISG grants exemption from
them when there is an impediment beyond control while all other remedies remain intact. The
Indian Contract Act grants a total discharge from the contract which means that there is no duty to
pay damages and in addition to it the other party is unable to exercise any other remedies which are
available to him. The difference between Indian Contract and CISG jurisdictions, then, is that
Courts in India are willing to examine the circumstances of the contract and infer which party had
assumed the risk, while the CISG, at least ideally, forces the parties to make the risk determination
explicit. Although there is a certain degree of uniformity between these two legislations on the
point of no-fault liability, much more is desirable in order to facilitate trans-border sales and
uniformity between the sales laws.
 BIBLIOGRAPHY
➢ Avtar singh, Contract & Specific Relief (Eastern Book Company , New Delhi), 12th edn.,
2020
➢ Pollock & Mulla, The Indian Contract & Specific Relief Acts (Lexis Nexis), 16th Edn, 2019
➢ C.K. Takwani, Civil Procedure with Limitation Act, 1963 (Eastern Book Company), 9th
edn. 2021
➢ Contract Law in India by Akhileshwar Pathak, OUP India (2011)

WEB SOURCES
➢ www.indian kanoon.com
➢ www.casemine.com
➢ www.legalbites.com
➢ www.manupatra.com

➢ www.ipleaders.com