Introduction
The world is less sovereign and more integrated than ever before. International Trade has provoked the usage of International Commercial Contracts (“ICC”). However, there are exclusive challenges with ICC as opposed to Domestic Contracts. Primarily, the question of what Law governs is the main substantive part of the contract. Parties of different nationalities would undoubtably prefer their national law to govern contracts.
Nevertheless, a choice of only one jurisdiction can be made and it has to be a choice well thought out. Among the many factors influencing this choice, one key consideration is the flexibility offered by a jurisdiction regarding contract alterations. Some legal systems impose strict formalities for modifications, while others offer greater flexibility, allowing parties to adapt their agreements with ease. Hence, it is pertinent to be aware of position of different jurisdictions on the aspect of alteration of a contract before deciding the governing Law of the Contract.
Therefore, this article specifically focuses on the issue of alteration of the Contract. A contract can be altered in most jurisdictions for various reasons. However, the mode, circumstances, and procedure for alteration is different in civil and common Law jurisdictions. This article will first lay down the common law procedure, second the civil law procedure, and third point out the relevant distinctions for the parties to make their right pick for their governing law of the contract.
Common Law position
In India, the terms “Adaptation,” and “Innovation,” are neither defined in the Indian Contract Act, of 1872 nor used in any section therein. However, the word, “Alteration,” can be interpreted as “Adapted,” and “Novation,” can be interpreted as “Innovation,” which is present and understood under the Act. As per Section 62: “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.” The ingredients to alter a contract are: first, it should be regarding the existing contract between the same parties that intend to alter it, Second, mutual consent by all parties to the contract; Third, alteration should not be so substantial that it amounts to innovation.
For instance, in the case of Suresh Kumar Wadhwa vs State of MP, it was established that the terms and conditions of a contract are binding on both parties once executed. And that, if one party were to alter any of the said terms and conditions, it can only do so with the consent of the other party. In the absence of availing such consent, any alteration will not be binding on either of the parties [¶27]. In another case, Union of India v. Tantia Construction Pvt. Ltd, it was established that the alteration of any terms and conditions should not be so major that it changes the entire scheme and nature of the contract [¶26].
Whereas, in the United Kingdom, the jurisprudence of this question is relatively more advanced. The ingredients to alter and novate a contract in the said jurisdiction are that first, there can be no unilateral change; Second, alteration is possible through conduct; and third, alteration need not be written. For instance, in the case of Musst Holdings Ltd v Astra Asset Management UK Ltd, the UK Court of Appeals held that any novation requires consent, however, the said consent need not be written and can be inferred through conduct [¶56].
Civil Law Position
One major advantage of civil law is the consistency that comes by codification of laws, it gives legal certainty and predictability. However, each country still has its own way to govern its framework. In France, Judges have to follow codified rules with limited reliance on precedents as per Article 5 of the French Civil Code. Under the French Civil Code, altering a contract is only permissible under certain conditions like: hardship (imprévision, Article 1195) where the parties may try to renegotiate the contract before frustrating it, force majeure (Article 1218), mutual agreement (Article 1101). The ingredients to alter a contract are: first, if performance is difficult, parties have to request renegotiation, and only when negotiation fails can courts alter the contract. Second, parties must act in good faith. Third, the contract can be altered if performance becomes impossible due to uncontrollable events. Fourth, there must be mutual agreement between the parties. Fifth, all alterations must comply with public order.
Whereas in Germany, legal writings by scholars can also influence judicial reasoning and the interpretation of codified laws. Under the German Civil Code (BGB), circumstances under which a contract can be altered are given under section 313 BGB, i.e., the doctrine of frustration of contract (Störung der Geschäftsgrundlage). It allows contract modifications when unforeseen events fundamentally alter the basis of the agreement, making its enforcement unreasonably burdensome for one party. Its ingredients are: first, the party invoking the provision must not be responsible for the change. Second, courts must first try to restore contractual balance by adjustment before alteration.
For instance, In XII ZR 8/21 (Jan 12, 2022), the German Federal Court during COVID said that rent adjustments can be justified under section 313 of BGB if allowing a contract to be continued will give unreasonable outcomes. However, they also said that there won’t be any automatic reduction of rents, courts will have to assess every case on a fact-by-fact basis, and they have to consider factors like revenue loss, government aid, risk allocation etc.
Distinction Civil Vs. Common Law
The basic distinction between common law and civil law with regard to contract alteration is in their approach to flexibility and codification. Common law systems allow contracts to be altered only with mutual consent, which mostly requires written modifications. However, sometimes changes can be inferred from conduct, and there is no rigid statutory framework to govern the alteration process. Courts have to interpret an agreement based on the parties’ intentions while making sure that the outcome is still fair and practical.
Civil law systems, on the other hand, work with codified rules that provide legal certainty and predictability. Contract alterations are permitted only under specific statutory conditions such as hardship, force majeure, or impossibility of performance. Courts prioritize renegotiation before intervening and make sure the modifications are in lieu with principles of fairness and good faith. Unlike common law, where courts have broad interpretative discretion, civil law jurisdictions strictly follow legislative provisions while occasionally incorporating scholarly opinions into judicial reasoning. This structured approach makes sure that there is stability but may also limit flexibility in adapting to unforeseen circumstances.
Author(s)
Tisha Sharma
Student at BML Munjal University
Harddit Bedi
Student at BML Munjal University & Alumnus of Hague Academy of International law