Force Majeure and Contingent Contracts: A Link that Wasn’t

[Shiv Swaminathan is Professor and Director, Centre for Legal Theory at Jindal Global Law School]

There are two propositions that are a part of the received wisdom on the law relating to “frustration” of contracts in India.

  1. That section 56 of the Indian Contract Act contains the complete law relating to “frustration”—inclusive of “impossibility”, “illegality,” and “frustration of purpose” (even though the word “frustration” did not belong to the phraseology of the section). And that, therefore, English decisions are of limited value when it comes to appreciating the contours of the provision (which is happily self-sufficient).
  1. That section 32 (contingent contracts) provides for force majeure clauses.

Both propositions are supported by the Supreme Court’s decision in Satyabrata Ghose v Mugniram Bangur [1954 SCR 310]. Being received wisdom, these propositions are (often unreflectingly) repeated by subsequent cases and have been uncritically accepted by scholars on Indian contract law.

In the last part of a previous three-part post in May 2020, I argued against proposition one (that section 56 contains the concept of frustration of contract). I argued that at the time of the drafting of the Act, “frustration of purpose” was yet to blip the radar of English law. The term “frustration” didn’t come into currency in English law until much after the Act was already enacted (in fact, it did not get ensconced in English law until the early 20th century). Hence, the first of the two propositions is plainly wrong. I shall not go over the same ground here.

The point of this post is to challenge the second of the above propositions by arguing that the link purported to obtain between section 32 and force majeure clauses does not hold up, either. Here is the argument, in short.

Force majeure clauses are about “resolutory conditions” (which extinguish an obligation on the happening or not happening of an event) rather than suspensive conditions (which make the creation of an obligation contingent upon the happening or not happening of an event). Section 32 of the Act is about suspensive conditions, not resolutory conditions. They cannot, therefore, be regulative of force majeure clauses. Let us now consider the evidence supportive of this claim.

Force Majeure Clauses in English Law

Unlike “frustration” which is of relatively recent vintage in English law, force majeure clauses go quite a long way back, albeit not under that French label. Consider the case of Paradine v Jane ((1647) Aleyn 26), which is widely cited as a source of the erstwhile ‘no-excuse’ or ‘strict approach’ of English law. In turning down the defendant’s plea of excuse from performance, the Court held that he should have provided for it by contract:

“When the party by his own contract creates a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract. And therefore, if the lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it. Dyer 33. a. 40 E. 3. 6. h.” (emphasis added)

That last citation (40.E. 3.6.h) is to a case going back all the way to 1366, where parties expressly agreed to be excused from liability on the happening of an eventuality [see Simpson, History of the Common Law of Contract (OUP 1975) p.31]. Such force majeure clauses also seem to have been fairly common in medieval bonds [F. Pollock, Principles of Contract 9th ed.  1921 299].

This background could go quite some distance towards accounting for why the early impossibility and frustration cases in English law, including Taylor v Caldwell, took the “implied condition” route—which is to say, relief was pegged upon an “implied condition” in the contract that performance will be excused on the happening of an event, rather than by operation of law. It was not until well into the twentieth century that it came to be seen as being based on a rule of law [D. Ibbetson, A Historical Introduction to the Law of Obligations (OUP 1999) p.258]. Section 56 of the Indian Contract Act was prescient in this aspect as it was premised on relief based on operation of law rather than an “implied condition”. Now, we come to the all-important question of how this “condition” was to be understood.

Resolutory Conditions and Force Majeure Clauses

In the nineteenth century, English and American treatises began to place force majeure clauses under a new classificatory rubric borrowed from Robert Joseph Pothier’s Traite des Obligations.   Under Pothier’s scheme, such clauses were classified as “resolutory conditions”. Pothier defined resolutory conditions as “those which are added to make the obligation cease when they are accomplished” [W.D. Evans trans. 1806 p. 129]. The effect of the accomplishment of the resolutory condition, according to Pothier, was to “discharge the obligation” or “put an end to it”. Resolutory conditions were to be distinguished from “suspensive conditions” which “suspend the obligation until the condition is accomplished” [op cit. p.126]. In case of a suspensive condition, the obligation itself does not arise until the condition is met. In case of a “resolutory” condition, by contrast, the obligation arises at the moment of contract creation but is extinguished on the happening of an event [op cit p.129]. Further, Pothier also listed “resolutory conditions” under Chapter III of his treatise, which dealt with the extinction of obligations [op cit p.444].

Nineteenth-century contract writers adopted this classification. However, instead of the literal translations from French (suspensive and resolutory), which sounded not only inelegant in English but also opaque as it did not convey how the concepts operated, they used the terms conditions precedent and conditions subsequent. [see e.g. Langdell, Selection of Cases on the Law of Contract 2nd ed 1879 p. 777; Pollock, Principles of Contract Law 9th ed. 1921 p.298]. Even the draft New York Civil Code used the terminology of conditions precedent and conditions subsequent.

Draft Indian Contract Act 1866

In the draft Indian Contract Act prepared by the Law Commissioners in 1866, there were two separate sets of provisions on “conditions”. One set was Clauses 14-17 and 25—which pertained to suspensive conditions or conditions precedent. The other was clauses 26-30 which pertained to resolutory conditions or conditions subsequent.  

The clauses on suspensive conditions or conditions precedent [i.e., clauses 14-17] used the language of “engagement intended to take effect” in case a “specified uncertain event” happens (clause 14) or does not happen (15). Clause 16 provided that in case the contract is conditional on an event happening, it becomes void when the event becomes impossible; and clause 17 that where an event is conditional on an event not happening, the “engagement becomes absolute” when such event becomes impossible. Clause 25 provided that when an engagement is conditional, and it fails to be fulfilled, the contract becomes void.

The clauses on resolutory conditions or conditions subsequent [i.e., clauses 26-30] used the terminology of “superadded conditions”. Clause 26 provided that engagement by contract may be “made with the condition superadded” that the engagement “shall be terminated or varied in case a specified uncertain even shall happen or…shall not happen”. Clauses 27 and 28 provided that in case the superadded condition stipulated for an event happening, the clause would not affect the operation of the engagement if the event was (cl.27) or became (cl.28) illegal or was impossible (cl.27) became impossible (cl.28) [HC Parliamentary Papers 1867-1868, pp.57-60]. Note the clear difference between the effect of the impossibility of the future event in the case of conditions precedent and conditions subsequent. In the case of a condition precedent, it makes the contract void, in the case of the condition subsequent, it leaves the contract unaffected.

J.F Stephen’s Tinkering with the Draft

The Law Commissioners who had drawn up the draft version of the Act had to resign due to a number of reasons, and the task of getting the draft Act to the final stage of enactment fell on J.F. Stephen, who had joined as the Law Member of the Governor General’s Council in 1869 (see Briggs and Burrows, Contract Law in Myanmar pp.266-267). When J.F. Stephen was drawing up the final version of the Act, he significantly recast provisions in the portions that constitute the first six chapters of the Act as enacted in 1872 (sections 1-75). Stephen’s attempt at redrawing the first 75 sections of the Act has been subject to significant criticism. As Pollock and Mulla noted, not everything Stephen introduced sat consistently with the rest of the Act (Pollock and Mulla, Indian Contract Act, 2nd ed 1909 v). As another critic, James Bryce put it, ‘Stephen’s capacity’ for drafting ‘was not…equal to his fondness for it’ (J. Colaiaco, James Fitzjames Stephen and the Crisis of Victorian Thought, Palgrave Macmillan 1983 p. 104). Courtney Ilbert (Stephen’s successor as Law Member) termed some of his work ‘hasty’ and as involving ‘defective masonry’ (ibid p. 105). Whatever the merits of such criticisms, going purely by what Stephen did with the provisions relating to conditions, one might find at least some of it justified.

The clauses on conditions were among those that were significantly tinkered with by Stephen. For some inexplicable reason, the clauses on “condition subsequent” were completely omitted from the final Act. Only the clauses on “conditions precedent” survived. Clauses 14-17 and 20 mutatis mutandis morphed into Sections 31-36 (making up all of Chapter III of the Act). However, they were labelled “contingent” contracts, which was a novel term not to be found in any of the standard textbooks or the Field’s code (draft New York Civil Code) from which some other sections of the Act were borrowed.  

The marginal notes to the first 75 sections of the Act produced by J.F. Stephen in February 1872 state that section 31 (s. 32 in Stephen’s version) was meant to be an alteration of Clause 14; that section 32 (s. 33 in Stephen’s version) was implied in the original illustration of Clause 14; that section 33 (s. 34 in Stephen’s version) was based on clause 15; and that section 35 (same numbering in Stephen’s version) was based on clauses 16 and 17 of the Commissioners’ draft Act. Clauses 26-30 of the Commissioners’ draft on conditions are conspicuous by their absence in Stephen’s version (India Office Records/ MSS EurF86-111). And they do not make their way into the enacted version of the Act either. This omission is inexplicable and must be added to list of Stephen’s missteps in drafting the Act.

Section 31 of the ICA—as it was finally enacted—defines a contingent contract as a “contract to do or not to do something, if some event collateral to such contract does or does not happen”. Section 32 provides that the contract contingent on the happening of a future event “cannot be enforced” unless that event happens; and that if the event becomes impossible, the contract becomes void. This is a tell-tale sign of this being a condition precedent. Not one of the sections in Chapter III (ss. 31-36) even mentions a “condition superadded” or about “termination or variation” of the obligation on the happening of an event, which is how the Commissioners’ draft had defined resolutory conditions or conditions subsequent.

The link between section 32 and force majeure clauses must then be added to the long list of errors and myths that have been sustained by the Indian courts and scholarship alike in (mis)understanding the Indian Contract Act, 1872.

– Shiv Swaminathan

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Shivprasad Swaminathan

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