The Effects of Financial Crises On The Binding Force of Contract 2016

Ius Comparatum – Global Studies in Comparative Law
Başak Başoğlu Editor
The Effects of Financial

Crises on the Binding
Force of Contracts
- Renegotiation,
Rescission or Revision
Ius Comparatum – Global Studies
in Comparative Law
Volume 17
Series Editors
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Diego P. Fernández Arroyo, Institut d’Études Politiques de Paris, Sciences Po,
Paris, France
Founding Series Editors

Jürgen Basedow, Max Planck Institute for Comparative and International Private
Law, Germany
George Bermann, Columbia University School of Law, USA
Editorial Board
Bénédicte Fauvarque-Cosson, Université Panthéon-Assas, Paris 2, France
Giuseppe Franco Ferrari, Università Bocconi, Milan, Italy
Toshiyuki Kono, Kyushu University, Fukuoka, Japan
Marek Safjan, Court of Justice of the European Union, Luxembourg
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Germany
More information about this series at http://www.springer.com/series/11943
Académie Internationale de Droit Comparé

International Academy of Comparative Law
Başak Başoğlu
Editor
The Effects of Financial

Crises on the Binding Force
of Contracts - Renegotiation,
Rescission or Revision
Editor
Başak Başoğlu
Istanbul Kemerburgaz University
Istanbul, Turkey
ISSN 2214-6881 ISSN 2214-689X (electronic)

Ius Comparatum – Global Studies in Comparative Law
ISBN 978-3-319-27254-2 ISBN 978-3-319-27256-6 (eBook)
DOI 10.1007/978-3-319-27256-6
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Preface
Growing interconnectedness of global economies facilitates the spread of the effects

of the financial crises. Financial crises cause severe difficulties for persons to fulfill
their contractual obligations. During the financial crises, performance of contractual
obligations may become excessively onerous or may cause an extreme loss for one
of the contracting parties and consequently destroy the contractual equilibrium and
legitimate the interventions to the contract. But who will bear the risk arising from
these circumstances?
This question, asked during the uncomfortable economic climate, leads to one of
the most controversial dilemmas of the contract law: whether the binding force of
the contract is absolute or not. In other words, unstable economic circumstances
impose the need to devote special attention to review and perhaps to narrow the
binding nature of a contract. Principle of good faith and fair dealing motivate a
variety of theoretical bases in order to overcome the legal consequences of financial
crises. All these theoretical bases are analyzed in this book with special focus on the
available remedies, namely, renegotiation, rescission or revision, and the circum-
stances that enable the revocation of these remedies.
The legal approaches of various jurisdictions provide different answers and solu-
tions to this problem. These differences seem to be determined predominantly by
the frequency and intensity of financial crises in each jurisdiction and also by the
influence of the financial, political, and social forces of the respective country.
The chapters in this collection are based on papers originally presented at the
XIXth Congress of the International Academy of Comparative Law, held in Vienna,
July 2014. I am grateful to all reporters who were willing to reformulate and submit
their reports considering the debates, which aroused great interest and appreciation
during the session in the Congress.
v
vi Preface
I would like to express my sincere gratitude to general reporter Prof. Dr. Rona
Serozan who provided me the opportunity to edit this book. I also appreciate the
unwavering support of my colleague Asst. Prof. Dr. Kadir Berk Kapancı. Also, I
would like to thank the organizers of the conference, both at the Paris headquarters
of the International Academy of Comparative Law and in Vienna. Last but not least,
special thanks are due to Neil Olivier, Diana Nijenhuijzen, and their colleagues
from Springer for their professional editorial efforts.
İstanbul 2015 Başak Başoğlu

Contents
Part I General Report and Original Questionnaire

1 General Report on the Effects of Financial Crises
on the Binding Force of Contracts: Renegotiation,
Rescission or Revision............................................................................. 3
Rona Serozan
Part II National Reports

2 From Crisis to Crisis: Weakness of Contracts in Argentina ............... 33
Julio César Rivera
3 Keeping the Balance: The Effects of Financial Crises
on Contracts Under Brazilian Law ....................................................... 53
Anderson Schreiber
4 Les effets exercés par les crises financières sur la force
obligatoire des contrats: certitudes et incertitudes
du droit québécois en matière d’imprévision ....................................... 59
Élise Charpentier and Nathalie Vézina
5 Can Financial Crisis Lead to the Application of the Institute
of Changed Circumstances Under Croatian Law? .............................. 83
Maja Bukovac Puvača, Gabrijela Mihelčić, and Iva Tuhtan Grgić
6 Elimination of the Impacts of Financial Crisis on Legal
Relationships According to Czech Private Law ................................... 101
Marketa Selucká
7 Financial Crises and Danish Contract Law:
No Room for Hardship ........................................................................... 121
Mads Bryde Andersen and Joseph Lookofsky
vii
viii Contents
8 Crises financières et contrats: le droit positif français refuse

la révision d’un contrat devenu déséquilibré mais le projet
de réforme entr’ouvre la porte à l’imprévision .................................... 137
Rémy Cabrillac
9 Financial Turmoil as a Change of Circumstances
Under Greek Contract Law ................................................................... 145
Nikolaos A. Davrados
10 “All Roads Lead to Rome”: The Multiple Grounds
Under Italian Law to Challenge a Contract Due
to Supervening Changes of Circumstances .......................................... 163
Marco Torsello
11 Effects of a Bubble Economy on the Binding Force of Contracts:
The 1990s Experience of Japan and Its Implications .......................... 191
Shugo Kitayama
12 The Effects of Crises on the Binding Force
of Contracts: Polish Solutions ................................................................ 207
Wojciech Robaczyński
13 Discussing the (Ab)Normality of Financial Crises as a Relevant
Change of Circumstances Under Portuguese Law .............................. 221
Manuel Carneiro da Frada and Mariana Fontes da Costa
14 L’imprévision dans le Nouveau Code Civil roumain
enfanté par la crise économique mondiale............................................ 243
Dumitru Dobrev and Marilena Uliescu
15 The Russian Federation Legislation on the Effects
of Financial Crises on the Binding Force
of Contracts: Renegotiation, Rescission or Revision ........................... 255
Nataliya Georgievna Doronina and
Natalia Gennadievna Semilyutina
16 The Effects of the Global Financial Crisis on the Binding
Force of Contracts: A Focus on Disputes over Structured
Notes in Taiwan ....................................................................................... 265
Chang-hsien Tsai
17 Certainty Over Clemency: English Contract Law
in the Face of Financial Crisis................................................................ 285
Horace Yeung and Flora Huang
18 Financial Crisis and the Remedy of Rescission
in the United States ................................................................................. 307
Aditi Bagchi
19 The Adaptation of the Contract in Turkish Law.................................. 313
Başak Baysal
Index ................................................................................................................. 331

Contributors
Mads Bryde Andersen Faculty of Law, University of Copenhagen, Copenhagen,

Denmark
Aditi Bagchi Law School, Fordham University, New York, NY, USA
Başak Başoğlu Faculty of Law, Istanbul Kemerburgaz University, Istanbul, Turkey
Başak Baysal Faculty of Law, Istanbul University, Istanbul, Turkey
Rémy Cabrillac Faculté de droit, Université de Montpellier, Montpellier, France
Élise Charpentier Université de Montréal, Montréal, Québec, Canada
Mariana Fontes da Costa Law Department of the Faculty of Economics,
University of Porto, Porto, Portugal
Nikolaos A. Davrados Loyola University New Orleans, College of Law, New
Orleans, Louisiana, USA
University of Nicosia, Department of Law, Nicosia, Cyprus
University of Athens, School of Law, Athens, Greece
Dumitru Dobrev Legal Research Institute “Acad. Andrei Rădulescu” of Romanian
Academy, House of Romanian Academy, Bucharest, Romania
Nataliya Georgievna Doronina Private International Law Department, Institute
of Legislation and Comparative Law, Moskow, Russian Federation
Manuel Carneiro da Frada Faculty of Law, University of Porto, Porto, Portugal
Iva Tuhtan Grgić Faculty of Law, University of Rijeka, Rijeka, Croatia
Flora Huang School of Law, University of Leicester, Leicester, UK
Shugo Kitayama School of Law, Seikei University, Tokyo, Japan
ix
x Contributors
Joseph Lookofsky Faculty of Law, University of Copenhagen, Copenhagen,

Denmark
Gabrijela Mihelčić Faculty of Law, University of Rijeka, Rijeka, Croatia
Maja Bukovac Puvača Faculty of Law, University of Rijeka, Rijeka, Croatia
Julio César Rivera Faculty of Law, University of Buenos Aires, Buenos Aires,
Argentina
Wojciech Robaczyński Faculty of Law and Administration, University of Łódź,
Łódź, Poland
Anderson Schreiber Faculty of Law, Rio de Janeiro State University, Rio de
Janeiro, Brazil
Marketa Selucká Faculty of Law, Masaryk University, Brno, Czech Republic
Natalia Gennadievna Semilyutina Private International Law Department,
Institute of Legislation and Comparative Law, Moskow, Russian Federation
Rona Serozan Faculty of Law, Istanbul Bilgi University, Istanbul, Turkey
Marco Torsello School of Law, University of Verona, Verona, Italy
School of Law, New York University, New York, NY, USA
Chang-hsien Tsai Institute of Law for Science and Technology, National Tsing
Hua University, Hsinchu, Taiwan
Marilena Uliescu Legal Research Institute “Acad. Andrei Rădulescu” of Romanian
Academy, House of Romanian Academy, Bucharest, Romania
Nathalie Vézina Université de Sherbrooke, Sherbrooke, Québec, Canada
Horace Yeung School of Law, University of Leicester, Leicester, UK
About the Authors
Mads Bryde Andersen graduated from the University of Copenhagen in 1981 and
practiced law as a Danish advocate in the years thereafter. In 1991, he was appointed
Professor of Law at the same university. His authorship comprises contract law, the
law of obligations, pension law, IT law, intellectual property law, and the law of
advocacy. He defended his Dr.jur. degree in 1989 on the basis of his doctoral dis-
sertation on computer liability issues (1988). He is chairman of the governing board
of the Danish Financial Supervisory Authority (FAS) and a frequent arbitrator in
domestic Danish and international arbitrations.
Aditi Bagchi is Professor of Law at Fordham University Law School. She teaches
in the areas of contract and labor law. Her research concerns the nature of contrac-
tual obligation, contract interpretation, and questions in political and moral philoso-
phy as they arise in contract. Professor Bagchi obtained her J.D. from Yale Law
School, an M.Sc. in Economic and Social History from Oxford University, and an
A.B. in Government and Philosophy from Harvard College.
Başak Baysal is Associate Professor of Civil Law at Istanbul University Faculty of

Law. She obtained both her bachelor degree in law and her doctorate in private law
from Istanbul University and her LL.M. degree from Paris II Panthéon-Assas. She
is member of Executive Committee of International Association of Legal Sciences
and member of Association Henri Capitant des amis de la culture juridique fran-
çaise, Société de législation comparé, European Law Institute, and Freunde des
Max-Planck-Instituts.
Rémy Cabrillac is Professor at the Faculty of law of the University of Montpellier

(France). He has published many books including Law of Obligations, The
Codifications, General Introduction at Law, Dictionary of Law, Matrimonial Law,
and more than 200 articles. He has participated at many conferences throughout the
world about his specialities.
xi
xii About the Authors
Élise Charpentier is Professor at the Faculté de droit of Université de Montréal.

She holds bachelor degrees in civil (LL.B.) from Université de Sherbrooke, a
Diplôme d’études approfondies (D.E.A.) in private law from Université Paris 2, and
a doctorate (D.C.L.) from McGill University. Her ongoing areas of research include
contracts, property, and secured transactions.
Mariana Fontes da Costa is Assistant Lecturer at the Law Department of the

Faculty of Economics at the University of Porto and lectures also in postgraduate
courses at Porto Business School. She is also a member of the Legal and Economic
Centre of the Faculty of Law at the University of Porto (CIJE), researching mainly
in the area of contract law.
Nikolaos A. Davrados is Visiting Professor of Law at Loyola University New

Orleans College of Law. He also holds a Teaching Fellowship in Law at the
University of Athens, Greece, and is Assistant Professor of Law at the University of
Nicosia, Cyprus. He teaches and writes in the areas of civil law, conflict of laws,
immigration law, and international business transactions.
Dumitru Dobrev is Researcher at the “Andrei Rădulescu” Law Research Institute

attached to the Romanian Academy. In 2014, he received his doctoral thesis in pri-
vate law “Legal Means to Preserve Debtor’s Patrimony” at the same institute. Since
1999 he is barrister and IP counsel from 2006. His areas of research include law of
obligations, bankruptcy law, commercial law, and intellectual property law.
Nataliya Georgievna Doronina is Vice Director of the Center for Economic and
Legal Studies at Private International Law Department of the Institute of Legislation
and Comparative Law under the Government of Russian Federation. She obtained
her bachelor degree from Moscow State Institute of Foreign Relations (Faculty of
Economy) in 1967 and her doctor of law degree from Moscow State Institute of
Foreign Relations upon completion of her postgraduate degree in 1996. She worked
as a researcher, senior researcher, leading researcher, Chief of Department of Private
International Law, and Deputy Director of the Center for Economic and Legal
Studies of the Institute of Legislation and Comparative Law under the Government
of Russian Federation. Her research focuses mainly on the problems of investment
law, foreign investments, private international law relating to the foreign invest-
ments regulations, and comparative law.
Manuel Carneiro da Frada is Professor of Law at the Law Faculty of the University
of Porto. He has published numerous articles and several books in the fields of civil
and commercial law, as well as legal theory, areas in which he mainly focuses his
teaching and research activities.
Iva Tuhtan Grgić was born in 1977 in Rijeka. Since 2001, she has been working as
a research assistant at the Department of Civil Law within the University of Rijeka
Faculty of Law. She defended her doctoral dissertation “Contract of Inheritance” in
About the Authors xiii
2014 at University of Zagreb Faculty of Law. She has published several scientific
papers in the field of civil law and presented papers in various national and interna-
tional conferences.
Flora Huang is Lecturer in Commercial Law at the School of Law, University of

Leicester. Prior to that, she was Lecturer in International Business Law in the
University of Hull. She completed her doctorate at the School of Oriental and
African Studies (SOAS), University of London. She has worked in international
organizations such as the Basel Convention in Geneva and the Office of Legal
Affairs of the United Nations Headquarters in New York. She was also a legal con-
sultant in a Chinese bank.
Shugo Kitayama is Professor of Law at Seikei University Law School in Tokyo. He

teaches in the areas of contract law and other law of obligations. His research con-
cerns especially the practical and philosophical problems of the revision of long-
term contracts after the conclusion of contracts and the area of medical law.
Professor Kitayama obtained his M.L. from University of Tokyo, an M.A. on
International Relations from International University of Japan, and a B.L. from
University of Tokyo.
Joseph Lookofsky first studied law at New York University (J.D. 1971). He is a
Member of the New York State Bar and was in-house legal counsel for United
Artists Corporation. He later studied Danish law at the University of Copenhagen
(Cand.jur. 1981; Dr.jur. 1989) and joined the Law Faculty there in 1981. His princi-
pal areas of research and teaching are contractual obligations, sales law (domestic
and international), comparative law, and private international law. He serves as
Denmark’s Correspondent for UNCITRAL and is a Titular Member of the
International Academy of Comparative Law (Académie Internationale de Droit
Comparé).
Gabrijela Mihelčić is Assistant Professor of Civil Law at the Faculty of Law,

University of Rijeka. Her principal research interest is property law. She has pub-
lished several scientific papers and chapters in books in the field of civil law. She
presented papers in various national and international conferences in Croatia and
neighboring countries.
Maja Bukovac Puvača is Associate Professor of Civil Law at the Faculty of Law,
University of Rijeka. Her principal research interest is tort law. She has published
several scientific papers and chapters in books in the field of civil law. She presented
papers in various national and international conferences in Croatia and neighboring
countries.
Julio César Rivera is a regular member of the Academia Nacional de Derecho de

Buenos Aires as of November 1999; correspondent member of the Academia
Peruana de Derecho; former president of the Argentine Comparative Law
xiv About the Authors
Association; former president of the Capítulo Rioplatense del Club Español del
Arbitraje and member of the ICC Latin America Group; vice-president at Centro de
Mediación y Arbitraje Comercial (CEMARC) – (Commercial Arbitration Centre);
correspondent member of the International Institute for the Unification of Private
Law (UNIDROIT – Rome); and member of the Asociación Internacional de Juristas
Andrés Bello (París).
Wojciech Robaczyński is member of Faculty of Law and Administration of

University of Lodz. He is the author of numerous publications on the civil, com-
mercial, and financial law. He is particularly interested in the change of contractual
relations and public procurement. He gives several lectures and seminars, also on
the contractual law.
Anderson Schreiber is Professor of Civil Law at the State University of Rio de

Janeiro (Brazil). He is a Doctor (Ph.D.) in Comparative Private Law at the Università
degli studi del Molise (Italia); master in Civil Law at the State University of Rio de
Janeiro. He is Public Attorney for the State University of Rio de Janeiro and Partner
of the law firm Schreiber Domingues Cintra Lins e Silva Advogados. He is author
of The Prohibition of Contradictory Behaviour (Venire Contra Factum Proprium),
2005, New Paradigms for Civil Liability (2007), Rights of Personality (2011), and
Civil Law and Constitution (2013). He is also a legal expert and arbitrator in judicial
and arbitration proceedings in Brazil and abroad.
Marketa Selucká is Associate Professor at the Department of Civil Law, Faculty of

Law of Masaryk University in Czech Republic. She focuses mainly on consumer
protection and lease. She has published many articles and textbooks on consumer
protection, leases, and other civil law issues.
Natalia Gennadievna Semilyutina is Director of the Center of Comparative Legal

Studies at the Private International Law Department of the Institute of Legislation
and Comparative Law under the Government of Russian Federation. She obtained
her bachelor degree in Law (with honors) in 1987, her postgraduate degree in 1989,
and her doctorate of law degree in 2005 from Moscow State Institute of Foreign
Relations. She worked as a lecturer at the chair of private international law in the
Moscow State Institute of Foreign Relations. Between 1994 and 2010, she worked
as an adviser, vice-chief of the Law Department of the Moscow Interbank Currency
Exchange. In 2010, she joined the Institute of Legislation and Comparative Law
under the Government of Russian Federation and she is working as chief of the
Foreign Legislation Department – director of the Centre for Comparative Legal
Studies since 2015. Her main area of research is the problems of investment law,
foreign investments, financial market regulations, private international law relating
to the foreign investments regulations, and comparative law.
Rona Serozan is Professor of Civil Law at Istanbul Bilgi University School of Law
since 2007 and emeritus Professor of Civil Law at Istanbul University School of
About the Authors xv
Law. He holds his bachelor degree in law from Istanbul University and his doctorate
degree from Tubingen University. He published several books and articles in
Turkish, German and English.
Marco Torsello is Professor of Comparative Private Law at Verona Law School and
currently Hauser Global Visiting Professor at NYU, School of Law. His previous
appointments include the Research Professorship at Bologna Law School and
Visiting Professorships at NYU, Sciences Po, Fordham, Columbia University,
University of Pittsburgh, and several others in Italy and abroad. His research inter-
ests and teaching activities focus on comparative business law and international
business transactions, and he is the author of several books and articles in English
and Italian.
Chang-hsien Tsai, LL.B., LL.M. (National Taiwan University), LL.M. in Corporate

Law (New York University), J.S.D. (University of Illinois), is an Associate professor
of Law and Business at Institute of Law for Science and Technology, College of
Technology Management, National Tsing Hua University, Taiwan (NTHU). His
research interests are in the areas of corporate law, securities regulation, and finan-
cial market regulations. Many of his research results have been published in
renowned academic journals in Taiwan and the United States, such as National
Taiwan University Law Journal, Academia Sinica Law Journal, and Syracuse
Journal of International Law and Commerce. He joined the NTHU faculty in 2010
and was granted New Faculty Research Award in 2013.
Marilena Uliescu is Professor and Honored scientific researcher, former head of

the Private Law Department of the Legal Research Institute within the Romanian
Academy, former head of the National Institute of Magistracy and associated mem-
ber of the International Academy of Comparative Law.
Nathalie Vézina has been a Professor at the Faculté de droit of Université de

Sherbrooke, Québec, Canada, since 1992. She holds bachelor degrees in civil and
common law (B.C.L., LL.B.) from McGill University, a Diplôme d’études appro-
fondies de droit privé from Université Robert Schuman – Strasbourg III, and a
Doctorat de droit comparé from Université Panthéon Assas – Paris II. She special-
izes in the fields of obligations and civil liability, comparative law, and higher edu-
cation pedagogy.
Horace Yeung is Lecturer in Commercial Law at the School of Law, University of

Leicester. He was Lecturer in Law at the School of Law, University of Exeter
between 2010 and 2012, after reading accountancy and law at the Chinese University
of Hong Kong, Lancaster, and Oxford. He is author of Chinese Companies and the
Hong Kong Stock Market (Routledge, 2014, with Flora Huang). He was a Sir
Edward Youde Scholar and recipient of the Confucius Institute Highly Commended
Prize.
Abbreviations
ADR Alternative Dispute Resolution

AJDA Actualité juridique de droit administrative (France)
Art. Article
Art. Article (s)
BAROC The Bankers Association of the ROC
B.R. Cour du Banc du Roi du Québec OU/OR Recueil de la Cour du
Banc du Roi
Bs. As. City of Buenos Aires
c. Contre
C.A. Cour d’appel du Québec OU/OR Recueil de la Cour d’appel
(Soquij)
CC Civil Code
C.c.B.C. Code civil du Bas Canada
CCP The Taiwanese Code of Civil Procedure
C.c.Q. Code civil du Québec
C. de D. Cahiers de droit (Québec)
CE Conseil d’etat (France)
ch. Chapter/Chapitre
CNCiv. National Civil Court of Second Instance (Argentina)
CNCom. National Commercial Court of Second Instance (Argentina)
CNFed. National Federal Court of Second Instance (Argentina)
CPA The Consumer Protection Act
C.Q. Cour du Québec
C.S. Cour supérieure du Québec OU/OR Recueil de la Cour supéri-
eure (Soquij)
CSN National Supreme Court of Justice (Argentina)
D Recueil Dalloz
DL Decreto-Lei
Doc. Jud. Judicial Doctrine Magazine [Revista Doctrina Judicial]
ED El Derecho Magazine [Revista El Derecho]
xvii
xviii Abbreviations
éd. Édition
EU European Union
EUR Euros
FCPA The Financial Consumer Protection Act (Taiwan)
FSC The Financial Supervisory Commission (Taiwan)
GBP British sterling pounds
GDP Gross domestic product
GFC The Global Financial Crisis
HBOS Halifax Bank of Scotland
JA Jurisprudencia Argentina Magazine [Revista Jurisprudencia
Argentina]
JCP Juris-Classeur périodique (Semaine juridique)
J.E. Jurisprudence Express (Soquij)
Lehman Bros. Lehman Brothers Holdings Inc.
LL Argentine Legal Magazine La Ley [Revista Jurídica Argentina
La Ley]
L.R.C. Lois révisées du Canada
MOF The Ministry of Finance
no. Number
NTD New Taiwan Dollar
QCCS Décision de la Cour supérieure du Québec en libre accès (www.
jugements.qc.ca)
RBS Royal Bank of Scotland
R.C.S. Recueil de la Cour suprême du Canada
RDC Revue Des Contrats
R.D.I. Recueil de droit immobilier (Soquij)
R.D. McGill Revue de droit de McGill (Université McGill)
RDPyC Communitarian and Private Law Magazine [Revista De Derecho
Privado y Comunitario]
R.G.D. Revue générale de droit (Université d’Ottawa)
RIDC Revue internationale de droit comparé
R.J.Q. Recueil de jurisprudence du Québec (Soquij)
R.L. / R.L.n.s. Revue légale / Revue légale nouvelle série (Wilson et Lafleur)
RLDC Revue Lamy Droit Civil
RLRQ Recueil des lois et des règlements du Québec
ROC Republic of China (Taiwan)
RTDCiv. Revue Trimestrielle de Droit Civil
SCJ Mendoza Supreme Court of Justice of the Province of Mendoza (Argentina)
SFIPC The Securities and Futures Investors Protection Center
Soc. lég. comp. Société de législation comparé
STJ Portuguese Supreme Court of Justice
t. Tome
TRC Coimbra Court of Appeal
TRG Guimarães Court of Appeal
TRLx Lisbon Court of Appeal
Abbreviations xix
TRP Porto Court of Appeal

UK United Kingdom
US United States
USD United States dollars
vol. Volume
WWII The Second World War
Part I
General Report and
Original Questionnaire
Chapter 1
General Report on the Effects of Financial
Crises on the Binding Force of Contracts:
Renegotiation, Rescission or Revision
Rona Serozan
Abstract Upon the outbreak of financial crises, financial assets suddenly lose a
large part of their value. The collapse of financial institutions, insolvencies of com-
panies, liquidity bottlenecks, not repaid credits, immensely rising interest rates
cause severe difficulties for persons to fulfill their contractual obligations and
destroy the equilibrium of the mutual obligations established initially in the con-
tract. The frequency and intensity of financial crises and their negative repercus-
sions on the traditional binding force of contracts are really immense. They evidently
motivate the search for juridical solutions of the problem. While the economists
search for economic precautions against and solutions for the financial crisis, the
jurists look after juridical precautions and solutions. There are two dominant respec-
tive golden rules on the legal ground to be applied during financial crises. These
rules are “pacta sunt servanda” and “nominalism”. The difficult mission of the jurist
is to find the ideal proportion between two extreme poles. The options are whether
to stick on the principles of “pacta sunt servanda” and “nominalism” or to respect
the principle of loyalty (fairness), which is also considered as sacred. This chapter
aims to analyze 20 impressive national reports from Argentina, Brazil, Canada
(Québec), Croatia, the Czech Republic, Denmark, France, Germany, Greece, Italy,
Japan, Poland, Portugal, Romania, Russia, Singapore, Taiwan, the United Kingdom,
the United States and Turkey with regard to the effects of financial crises on the
binding force of contracts: renegotiation, rescission or revision.
This article is also published in the book “Turkish National Reports to the XIXth Congress of the
International Academy of Comparative Law” edited by Rona Serozan and Başak Başoğlu, and
published by Vedat Kitapçılık upon whose approval, was updated later by the author.
R. Serozan (*)
Faculty of Law, Istanbul Bilgi University, Istanbul, Turkey
e-mail: rona.serozan@bilgi.edu.tr
© Springer International Publishing Switzerland 2016 3

B. Başoğlu (ed.), The Effects of Financial Crises on the Binding Force of
Contracts - Renegotiation, Rescission or Revision, Ius Comparatum – Global
Studies in Comparative Law 17, DOI 10.1007/978-3-319-27256-6_1
4 R. Serozan
1.1 Introduction: The Weight of Financial Crises and Their

Legal Repercussions
A financial crisis means in concreto the collapse of financial institutions, the tight-
ening of access to credit, insolvencies of companies, liquidity bottlenecks, devalua-
tion of the purchasing power of money, increase of product costs, uncovered credits,
suddenly and extremely rising interest rates on loans.
These unfortunate manifestations of financial crises cause severe difficulties for
persons to fulfill their contractual obligations and disturb the equilibrium of the
obligations established initially in the contract.
The frequency and intensity of financial crises and their negative repercussions
on the traditional binding force of the contracts evidently stimulate the search for
juridical solutions of the problem. While the economists search for economic pre-
cautions against and solutions for the financial crisis, the jurists look after juridical
precautions and solutions.
The fact that explicit contractual “force majeure” and “hardship” – clauses of
adjustment like resolutory and suspensive conditions or ad hoc indices like “echelle
mobile” provisions as a remedy against such unexpected crises are not so often
taken into account, intensifies the problem even to a higher degree.
Recently, the problem and its possible alternative means of solution are literally
booming. Thus, the choice of “the effects of financial crises on the binding force of
contracts” as a topic for the 19th Congress of the International Academy of
Comparative Law is meaningfully important.
Within this framework, the “Questionnaire” presented to the national reporters
exposes the actually booming problem in detail. The national reporters were invited
to answer in their reports, as far as possible, the listed questions, within the under-
standing, that they, if they wish, may address also additional issues linked to the
theme.
1.1.1 Questionnaire
1. Does your national law take into consideration the effects of financial crises on
the contracts or does it strictly adhere to the principle of “pacta sunt servanda”?
2. If the effects of financial crisis on the contracts are taken into consideration, what
is the theoretical basis for the acceptance: (1) the principle of loyalty and good
faith? (2) the “clausula rebus sic stantibus” theorem? (3) complementary inter-
pretation of the contract based on the hypothetical intentions of the parties? (4)
the doctrine of the cessation of the basis of the contract “Wegfall der
Geschäftsgrundlage”? (5) the idea of frustration of the contract? (6) the theory of
unpredictability (imprévision)?
3. According to your national law what are the conditions in order to accept such
an exceptional fact: (1) extraordinariness? (2) unforeseeability? (3) not being
1 General Report on the Effects of Financial Crises on the Binding Force… 5
obliged to carry the burden of risk of crisis according to the legal or contractual
risk allocation? (4) not having caused the unfavourable circumstances? (5) not
having performed the obligation yet or at least performed it with reservation?
4. What are the appearances of exceptional circumstances, which could justify an
intervention on the frustrated contract according to your national law: (1) exces-
sive onerousness (hardship)? (2) distortion of the equivalence of exchange? (3)
any other appearance?
5. What would be the legal consequence in such a case under your national law: (1)
revision (adjustment) of the contract? (2) termination of the contract? (3) rene-
gotiation? (4) any other remedy? (5) is there any priority between these reme-
dies? (6) is it necessary to apply to the court in order to benefit from these
remedies or not?
6. In case the contract is adjusted or terminated can the counter-party who is injured
by these measures claim any indemnity of equity (Aufopferungsanspruch)
according to your national law?
Briefly, the Questionnaire was focused on (1) searching the means for harmoniz-
ing the contradictory principles of “pacta sunt servanda” and “fairness”, (2) listing
the theoretical instruments for intervention into the contract, (3) framing the typical
appearances of the exceptional circumstances, (4) classifying the conditions and (5)
finally determining the legal consequences (remedies) for contracts, destabilized
due to financial crises.
Upon this questionnaire, we have received 20 impressive national reports from
Argentina, Brazil, Canada (Québec), Croatia, the Czech Republic, Denmark,
France, Germany, Greece, Italy, Japan, Poland, Portugal, Romania, Russia,
Singapore, Taiwan, Turkey, the United Kingdom and the United States. Here, once
more, we would like to express our deepest gratitude to the authors for their excel-
lent reports comprising illuminating contributions for the solution of the actually
booming problem.
A sincere thanks goes to my young colleague, Assistant Professor Dr. Başak
Başoğlu who assisted me during the most difficult task to synthesize the reports.
Nota bene: It must be acknowledged that if the farsighted parties include in their
contracts an explicit clause of adaptation like resolutory and suspensive conditions
or ad hoc indexes, the problems to be discussed will not arise; they will be solved
peacefully according to the voluntary clauses of adaptation.
1.2 Essential Rules Related to the Problem: Principles

of Pacta Sunt Servanda, Nominalism and Guarantee
Liability for Money Debts
During financial crises, one of the most controversial problems arising in the frame-
work of the Law of Contract is whether this Law can still be governed by the three
respective golden rules: (a) pacta sunt servanda, (b) nominalism and (c) guarantee
6 R. Serozan
liability of the debtor of monetary obligations or can an intervention into the contract
be approved according to the general rules of discretion referring to contractual soli-
darity, reasonableness and good faith.
While adding nominalism and guarantee liability to the golden rule of pacta sunt
servanda, we assume that financial crises have their negative effects mostly on the
debtor of “monetary” obligations.
The classic principle of pacta sunt servanda means that the provision of the
agreements must be kept. In other words, obligations arising from a contract must
be performed at any cost.
This principle insists on the literal performance of contracts in spite of the fact
that events occurring after the conclusion of the contract have caused heavy burdens
for one party to fulfill his/her obligations or disturbed the initial equivalence of the
mutual obligations.
The principle of pacta sunt servanda is based on the view that once the risks have
been allocated by the parties during the conclusion of the contract, they should, as a
general rule, not be reallocated in a different manner later.
The allocation of the risk that the financial basis may change in the future, bur-
dens on the obligor. With a French proverb expressed; “contracter c’est prévoir.”
The principle is strict: The contract is binding and it must be performed in accor-
dance with its terms. Performance must be rendered as long as possible, regardless
of the burden that may impose on the performing party.
Unless an impossibility of performance in the true sense of the word occurs, no
obligor may refuse to fulfill its obligations invoking the subsequent change of finan-
cial circumstances.
The sanctity of this “contract strictness” (stare pactis) is emphasized in the
French Civil Code in a well-known formula: “Les conventions légalement formées
tiennent lieu de loi à ceux qui les ont faites. Elles ne peuvent être révoquées que de
leur consentement mutuel, ou pour les causes que la loi autorise.” The well-known
formula of the Code Civil.
As in its English translation: “Lawfully formed contracts have the force of law
as between the parties. They may be revoked only by mutual consent, or for causes
authorized by law.”
Besides the French Civil Code, the same wording appears in the article 1372 of
the Italian Civil Code, and with similar statutory formulation in Croatia (article 9 of
Civil Obligations Act), Denmark (section 1 and DL 5-1-1- Contracts Act), Japan
(article 9 of Civil Code), Poland (article 354 of Civil Code), Portugal (article 406 of
Civil Code), Romania (article 1271 of Civil Code), Russia (article 309 of Civil
Code) and Québec (article 1439 of Civil Code).
Even in jurisdictions where there is no explicit statement in connection with the
principle of pacta sunt servanda, it is recognized as a judicial tradition in those juris-
dictions, such as Argentina, Brazil, the Czech Republic, Germany, Taiwan and
Turkey. Likewise, in common law countries (the United Kingdom, the United
States and Singapore), the principle of pacta sunt servanda is accepted as a judicial
tradition that is recognized as the principle of “sanctity of contracts”.
The second golden rule is the principle of nominalism. According to this

principle, the contractually fixed amount of debt remains constant despite of the
change of the purchasing power of money. This principle rooted in common usage
is equally regarded as sacred.
The principle of nominalism is based on the denomination of the currency, but
not on its value. Simply, the principle of nominalism disregards the change of value
of the currency.
The Code of Québec formulates the principle of nominalism succinctly in art.
1564:
Where the debt consists of a sum of money, the debtor is released (only) by paying the
nominal amount due in money which is legal tender at the time of payment.
The third golden rule refers to the rigid guarantee liability of the debtor of mon-
etary obligations which burdens all the risks arising from financial turbulences on
the debtor. In other words, a debtor of money guarantees “ex lege” the payment.
According to this strict guarantee liability, money, as a subject of an undeter-
mined “obligation in kind”, cannot perish. Genus non perit! For the debtor of money
there is no excuse of impossibility. Money has to be obtained at any cost. According
to a German proverb: “Geld muss man haben!”
As mentioned in the German report, the principle according to which “one has to
possess money” implements that every debtor is responsible for his financial means
to be sufficient in order to fulfil his obligations.
Noticeably and consequently, in many countries an obligation for the debtor of
money to pay an interest is provided even in case of excused delay.
As emphasized in almost all national reports, all these principles are fundamental
principles of the Law of Contracts that are rooted lastly in the basic idea of legal
security.
Even though, these three golden rules may very well be outshined by the general
rules of discretion regarding contractual solidarity, good faith, fairness and reason-
ableness, which are referred to an equally important basic idea of the Law of
Contracts, namely the idea of justice, equity and solidarity, as we shall acknowl-
edge soon.
1.3 Concessions from the Golden Rules for the Sake

of Loyalty and Fairness
During the financial crises, although no fault falls on his part, one of the contracting
parties may find himself bound with a contract, which has become entirely disad-
vantageous or even burdensome for him.
Thus, compromising solutions and respectively exceptions to the principles of
pacta sunt servanda, nominalism and guarantee liability seem necessary as a result
of the financial crisis in the light of the overwhelming general rule of good faith and
fairness.
8 R. Serozan
Like many other legal principles, the principles of pacta sunt servanda,
nominalism and guarantee liability are not taken into consideration as an absolute
value against the principles of good faith, fairness and reasonableness. After all even
the French Civil Code stipulates the fact that “Les conventions doivent être exécu-
tées de bonne foi” (The contracts must be performed in good faith) in the same
provision, where it sanctifies the principle of pacta sunt servanda.
Three reform projects (Catala - art. 1135 -, Terré - art. 92 -, Chancellerie - art.
136 -), interestingly in France, where the most conservative attitude towards the
possibility of intervention into the contract due to financial crises was asserted,
show clearly the change of course towards the possibility of intervention into the
contract.
Also in Québec, which has so far been overly conservative in this matter, many
jurists argue forcefully in favour of admitting a pragmatic intervention into the
contract.
Undoubtedly, it is a difficult task for the jurists to find the ideal balance and har-
mony between the necessity of sticking to the principles of “pacta sunt servanda”,
“nominalism” and “guarantee liability” on one hand and respecting the principles of
“contractual solidarity”, “good faith”, “fairness” and “reasonableness”, on the other
hand.
Essentially, the topic of this report is concerned with the struggle of finding such
a middle course; in other words to reach the golden medium (aurea mediocritas).
1.4 Appearances of Subsequent Impairments Justifying

an Intervention into the Contract
The jurists, both in national and international level, have sought to find a balance
between the binding force of contract and the necessity to protect reasonableness in
the process of performing contractual obligations.
In extreme situations where the financial crisis fundamentally alters the equilib-
rium of the contract in an unacceptable measure or oversteps the limits of foresee-
able sacrifice for the debtor, an intervention into the binding force of the contract
appeared inevitably on the agenda of the jurists.
It is difficult to reach to a compromising solution between the two contradictive
poles, namely “pacta sunt servanda” and “fairness”.
The generally accepted criterion while searching for a compromising solution
between the contradictory poles can be underlined as follows:
When a financial crisis reaches up to an extent at which:
(a) the performance of the contract goes over the limit of foreseeable sacrifice and
causes an excessive onerousness on the debtor,
or,
(b) the equivalence of the reciprocal accomplishments of the contracting parties is
destroyed in an extremely high degree,
Only then an intervention into the contract (namely an adjustment or termination

of the contract) may be taken into consideration.
Particularly, to insist on the binding force of contract in such extreme situations,
which may cause several difficulties on the disadvantaged party is judged as obvi-
ously unfair.
These “shocking cases”, to use the wording in the American report, which justify
an intervention, correspond in last instance to the severe cases (cas criant) qualified
as “a manifest abuse of a right”.
In this sense, the contract is considered as binding only as long as the initial cir-
cumstances remain reasonably similar. But whenever a fundamental change in the
recent circumstances alters the essential basis of the contract and radically trans-
forms the scope of the parties’ performances, then an intervention into the contract
is justified.
The harmonic balance between the antagonistic principles of “pacta sunt ser-
vanda at any cost” and “performance only in the limits of equity” is herewith suc-
cessfully established.
Nota bene: Exceptional circumstances which could justify an intervention into
the contract may also arise due to non – financial reasons: (a) The case of excessive
onerousness due to moral reasons. (For example the difficulty to cohabit with a
partner after separation.) (b) The cease of the main purpose of a contract (For
example the cancellation of an event exclusively for which a tenancy agreement was
concluded.).
These cases however were not treated here, because they could not be related to
financial crises.
1.5 Theoretical Instruments Activated for an Intervention

into the Contract on the Ground of Fairness
Various juridical concepts evolved in favour of the disadvantaged party reveal how
different, difficult and simultaneously sophisticated jurists establish their conces-
sions from the principles of pacta sunt servanda, nominalism and guarantee
liability.
The sophisticated theoretical instruments mobilized for achieving an ideal com-
promise about the critical balance between the binding force of contract and fair-
ness, respectively for justifying an exceptional intervention to the contract can be
lined up in an overall view as follows:
Right at the beginning it must be pointed out that all the theoretical instruments
overlap with each other. It is difficult to make a clear distinction between these
overlying implements.
(a) Principle of loyalty and good faith,
(b) Clausula rebus sic stantibus,
10 R. Serozan
(c) Assumption of such a clause by the means of complementary interpretation of

the contract,
(d) Theory of the cessation (lapse) of the basis of the contract (Wegfall der
Geschäftsgrundlage),
(e) Idea of frustration of the contract,
(f) Théorie de l’imprévision.
Undoubtedly, the principle of loyalty and good faith or fairness well reasoned
placed at the top is the fundamental point of origin, in other words, the umbrella of
all the legal instruments activated to justify an intervention.
The British concept of “reasonableness (appropriateness) and the German con-
cept of “Zumutbarkeit” of the fulfilment of the obligation correspond widely with
this concept of loyalty, good faith and fairness.
The constitutional dimension of the omnipotent principle is unmistakable. It is
after all rooted in the basic principles of almost all the Constitutions. This is a good
example for the influence of human rights and basic constitutional rights on private
law.
The overwhelming role of the principle of loyalty and good faith is underlined in
the national report of Canada (Québec) as the rationale invoked by those who favour
the recognition of an obligation to cooperate and to renegotiate as a way to curtail
the traditional application of pacta sunt servanda. Moreover the Taiwanese national
report emphasizes that prior to incorporating a special provision on changed cir-
cumstances to the civil code in 1999, the courts applied the rule of loyalty and good
faith without any reservation.
It is interesting to observe that according to the Greek report, the judges some-
times prefer to apply directly the general principle of loyalty and good faith,
although there exists a special and detailed provision dealing with the unforeseeable
change of circumstances.
Evolving from the principle of loyalty and good faith, the classic theorem of
“clausula rebus sic stantibus” seems to be the most popular instrument and in the
meantime the final resort for an intervention into the contract due to changed
circumstances.
“Clausula rebus sic stantibus” is in reality an assumed (implied) tacit clause
according to which the contract is binding as long as the circumstances existing at
the stage of the conclusion of the contract remain substantially the same. If the
assumption fails the contract is to be revised.
It is constructed upon the basic idea that a contract is legally binding unless there
is a fundamental change in the circumstances considered by the parties at the time
of the conclusion of the contract. In other words the binding force of contracts per-
sists only to the extent that the basic presuppositions of the contract remain
unchanged.
Thus, if in case of a fundamental change in circumstances after the conclusion of
the contract, the essential basis of the parties’ consent to be bound by the contract is
totally altered and the extent of the parties’ performances under the contract is radi-
cally transformed, the contract can be adjusted or terminated.
The doctrine of clausula rebus sic stantibus, originally produced in connection

with the conflicts in the sphere of International Law of Treaties focuses on extraor-
dinary and unforeseen circumstances that may arise after the formation of the
contract.
This doctrine is especially applied in cases where the performance of the con-
tractual obligation has become extremely burdensome or where the balance of
mutual obligations has been fundamentally disturbed.
The concept of assumed (implied) clausula rebus sic stantibus, after all the prod-
uct of the rule of loyalty and good faith, is, as mentioned before, the mostly favoured
and mobilized theoretical instrument to justify an intervention into the contract.
Almost all national reports refer to this theorem as a final resort of justification for
intervention.
“Complementary interpretation of the contract” on the basis of hypothetical
intention of the parties in favour of the disadvantaged party is, as a matter of fact, a
modern version of the theorem of clausula rebus sic stantibus.
In Japan and Turkey, the technique of complementary contract interpretation
replaces the clausula rebus sic stantibus doctrine. Particularly, the Turkish doctrine
follows this sophisticated way of interpretation obviously influenced by the closely
related Swiss doctrine and jurisdiction.
The jurists choosing this technique of interpretation admit frankly that they
operate in reality with a fiction of intention just like the “clausula rebus theoreti-
cians” do.
Nota bene: In Inheritance Law the unforeseeable change of circumstances
occurring after the testamentary disposition are considered exclusively in the
framework of complementary interpretation on the basis of the implied (fictitious)
intention of the testator.
According to this approach, the precise content of the contract is to be deter-
mined in line with the rules of interpretation, which refer to the parties’ mutual wills
to be found implicitly.
If the mutual wills cannot be derived from the contract, the contractual gaps
(loopholes) shall be filled (completed) upon reconstructing their hypothetical wills
in the light of the principle of good faith by complementary interpretation.
Nota bene: If it is assumed that the possibility of intervention is founded on the
complementary interpretation, that is on the parties’ intention, then this possibility
may be voluntarily excluded in the framework of free disposal, derived from the
freedom of contract. In legal alternatives founded on the violation of imperative
principles like loyalty and good faith however, such a voluntarily exclusion shall
inevitably not be admissible.
A concept developed in Germany also from the theorem of clausula rebus sic
stantibus is the doctrine of the cessation (the lapse) of the basis of the contract
(Wegfall der Geschäftsgrundlage), which was first introduced by Oertmann, after-
wards developed by Larenz, then accepted by the legal doctrine as well as the juris-
diction and finally regulated under § 313 BGB upon the reform of German Law of
Obligations in 2002.
12 R. Serozan
“Geschäftsgrundlage” is constructed by perceptions of the parties relating to the

existence of the future occurrence of certain facts. The contractual intention of the
parties is assumed to be built on this perception.
The basis of contract (Geschäftsgrundlage) may be considered as a premature,
secret and implied (assumed) “condition” (condicio tacita) of the contract; in other
words as a presupposition (Voraussetzung).
As a matter of fact, Italy and Portugal prefer to work with the concept of
“Voraussetzung” (precondition/presupposition), a concept that we owe to
Windscheid.
Concisely, the doctrine of the cessation of the basis of the contract provides the
court to adjust or terminate the contract in case of a subsequent change in circum-
stances which makes an obligation substantially more onerous to perform or results
in a profound alteration of the economic equilibrium of a contract.
This doctrine is generally accepted in Brazil, Italy, Portugal, Greece and Turkey.
Parallel to § 313 BGB, Brazilian, Italian, Portuguese, Romanian, Greek and Turkish
laws introduced special provisions: article 478/479 of the Brazilian Civil Code,
articles 1467–1469 of the Italian Civil Code, article 437 of the Portuguese Civil
Code, article 1271 of the Romanian Civil Code, article 388 of the Greek Civil Code,
article 138 of the Turkish Code of Obligations.
The concept of “failed assumptions” which is widely applied in Scandinavian
countries and masterly developed in Denmark resembles the idea of the implicit
basis of the contract (Geschäftsgrundlage), and its predecessor, the concept of
“Voraussetzung”, evidently, last not least the hypothesis of clausula rebus sic
stantibus.
In light of the concept of “failed assumptions”, a party may be relieved from its
contractual obligations if the contract has unexpectedly become burdensome.
While the doctrine of the cessation of the basis of the contract was introduced in
Germany and the concept of failed assumptions was developed in Scandinavia and
especially in Denmark, another similar approach was adopted in English Common
Law; the doctrine of “frustration of the contract”.
The doctrine of frustration was established to mitigate the rigour of Common
Law’s insistence on literal performance of promises.
According to this doctrine a contract may be discharged on the grounds of frus-
tration if an unexpected event occurs after the formation of the contract, which
renders it impossible to fulfil the contract or even transforms the obligation to per-
form into a radically different obligation from that undertaken at the moment of
entry into the contract. The obligor revolts, “it was not this that I promised to do”.
The idea of frustration of the contract sets the contract aside if factual or legal
circumstances have changed to such an extent that the performance of the contrac-
tual obligations of the parties has turned out to be drastically different from what
they had initially intended.
As a matter of fact, the doctrine of frustration was born and applied as a theory
of impossibility. Only later, this theory was extended to the cases where the contrac-
tual purpose was frustrated, namely in the renowned “Coronation Cases”.
Within the factual framework of these cases, numerous contracts were concluded
in order to provide rooms, seats and even windows for a specific date to watch the
coronation parade of Edward VII. However, the coronation was postponed due to
the illness of the King and the route of the parade was revised.
Furthermore, in the Krell v. Henry case, being the first and the most significant
of the coronation cases, the Court of Appeals ruled that the coronation parade con-
stituted the foundation of the contract and was essential for its performance.
Consequently, its frustration discharged the contract and accordingly, the defendant
was released from his contractual obligation to pay the agreed lease.
However, the British courts rejected the application of the doctrine of frustration
in the well-known Suez Canal dispute. In the course of these series of disputes, it
was discussed whether the blockage of the Suez canal due to a war has led the con-
tracts for the sale of goods to be frustrated since the carriers were obliged to carry
the goods via Cape of Good Hope.
According to the courts, the blockage of the Canal did not fundamentally alter
the contractual balance since the sellers still held alternative routes though the cost
and the time of the carriage increased significantly. Consequently, these cases were
not considered to suffice the frustration of the contract.
The well-known French theory trying to justify the intervention into the contract
is the “theory of unpredictability” (la théorie de l’imprévision). When compared
with the above-mentioned theories, it is relatively uncomplicated. If an unpredict-
able event occurs which renders the claim of performance unjust, the victim may
according to this theory request termination of the contract.
“La théorie de l’imprévision” has been generally recognised in Administrative
Law since the well-known “Gaz de Bordeaux” decision.
Contrary to the administrative courts, the civil courts have consistently refused to
recognise a revision on the basis of unpredictability. “Révision pour imprévision”
was regularly rejected.
As clearly expressed in the “Canal de Craponne” case, the Cour de Cassation
decided that the Court of Appeals of Aix-en-Provence had violated the absolute
principle of pacta sunt servanda stipulated in article 1134 Code Civil by adapting
the contract regarding the maintenance costs of the Craponne Canal in favour of the
disadvantaged entrepreneur.
This decision is the best example for the restrictive approach of the French courts
regarding the intervention into the contract.
An interesting observation: While the French Cour de Cassation consistently
refused to apply the simple “théorie de l’imprévision”, viewing the contract as
something untouchable (intangibilité du contrat), the Supreme Court for administra-
tive justice (Conseil d’Etat) approved this doctrine, enabling adjustment for the
sake of the public. “La souplesse contractuelle” seems to have overwhelmed
“l’intangibilité du contrat”.
In fact, in the famous “Gaz de Bordeaux” case of 1916 where the adjustment of
a gas supply contract was acknowledged in order to prevent the disconnection of the
gas supply to Bordeaux due to the bankruptcy of the debtor (Compagnie Générale
de Gaz).
14 R. Serozan
The difference between the approaches of private law and public (administrative)
law can probably be put down to the fact that public interest overwhelms in the
public transactions where such a rationale obviously finds no consideration in pri-
vate transactions.
The rigorous approach of the French jurisdiction in the field of private law
towards the theory of unpredictability seems to be comparable with the strict
approach of the British jurisdiction towards the theory of frustration.
The rejection of the possibility to intervene into the contract in French law led
the parties to find solutions within their contracts. Explicit contractual clauses for
adaptation like resolutory and suspensive conditions, indices or mobile scales
(échelle mobile) spread all over the country.
Nevertheless, three drafts (rapports Catala, Terré and Chancellerie) have admit-
ted that an excessive onerousness due to an unpredictable change of circumstance
may very well lead to a duty to renegotiate on the premise of good faith.
The restrictive Common Law and French tradition seems recently to give way to
a more generous approach.
Argentina is also a country which is on the way to approve a much more flexible
approach towards the limits of the French theory of unpredictability and to recog-
nize a wider application of this theory in favour of the impaired party.
1.6 Interesting Overlaps within the Theoretical Bases

for an Intervention into the Contract
Looking globally at the total picture, we can note that all the different theoretical
instruments activated to justify an intervention into the contract overlap in many
aspects. Consequently, it is difficult to make a clear distinction between these over-
lying instruments.
Besides the overlaps of theoretical instruments with each other, there is also a
most interesting interaction between these instruments mobilized for subsequent
impairments and some initial invalidity facts like error, usury and immorality at the
stage of conclusion of the contract.
On the other hand, it can be observed that some subsequent impairments of per-
formance like impossibility and frustration are treated symmetrically likewise.
Let us start with the close relation between initial and subsequent impairments.
Especially the French and German reports proposing for subsequent impair-
ments an analogy to the initial conditions of validity of the contract like error, usury
and immorality indicate clearly the interaction between subsequent and initial
impairments.
Some jurists describe the cases for which an intervention due to suddenly
changed circumstances is justified, as cases of “subsequent immorality” or “subse-
quent usury”, whereas some other jurists evaluate the subsequent cessation of the
contract basis respectively as a mistake.
An interesting overlapping is met in German report in which the usury (lésion

antérieure) and the subsequent disproportion (lésion postérieure) is symmetrically
placed together although in usury (lésion), the discrepancy occurs at the conclusion
of the contract, while in subsequently changed circumstances, it appears at the stage
of performance. This is the reason why Québec law treats separately “lesion” and
“imprévision”.
Likewise, there are many jurists in France who resort also to “lésion” instead of
“imprévision” to justify the intervention into the contract.
Although the principle of “lésion” allows the contract only to be avoided when
there is a profound imbalance between the values of the respective obligations at the
time when the contract is concluded, still these jurists apply the principle of lésion
also in the case of unexpected circumstances (imprévision) in order to justify the
termination of the contract.
The remarkable allegory pointing out the similarity between usury and frustra-
tion sounds like this: “Lésion postérieur à la conclusion du contrat”! Expressed in
Latin: “laesio superveniens”!
Similar to this approach is the application of the rules regarding the “initial error
(mistake) in motivation” on the subsequent frustration.
As well known, normally an intervention into the contract can only be applied
when the changed circumstances occur unexpectedly after the conclusion of the
contract, while the parties’ errors regarding the circumstances before conclusion are
governed by the concept of error (mistake) as to motivation.
It is evident, that if the erroneous predictions regarding future facts are submitted
under the initial error as to the motive, then the scope of application of error (mis-
take) will expand on the account of the scope of application of frustration.
This point will be discussed in detail at a later stage in the framework of the
conditions for intervention into the contract.
Remarkably, in the German doctrine of the cessation of the basis of the contract
(Wegfall der Geschäftsgrundlage) and in the Danish concept of “failed assump-
tions”, initial error is considered as a ground for the subsequent cessation of the
contract basis.
It is interesting to read in the Greek report, that many jurists evaluate the general
provision on the unforeseeable change of circumstances as a subtle counterpart to
the provision on error.
Nota bene: The distinction between initial error (mistake) and subsequent frus-
tration has practical consequences: (1) In the framework of error (mistake), the
strict conditions for intervention due to frustration can be ignored. (2) On the con-
trary, the remedies regarding frustration are much more flexible than the ones
regarding error (mistake). (3) Also the time limits for intervention due to frustration
are not as strict as the time limits for invoking error (mistake).
A similar overlapping is also met in the framework of immorality, a fact that
comes regularly into application if the contract is initially burdensome for one of the
parties who had no free contractual choice due to his/her inadequate bargaining
position.
16 R. Serozan
This specific concept of initial immorality is most interestingly mobilised

actually in cases of subsequent changes of circumstances and thereby transforms
the claim of performance into an immoral claim. With the French wording; one
speaks of “atteinte postérieure aux bonnes moeurs”.
Interestingly, in the German report, following cases constituting immorality and
as a result nullity at the stage of conclusion of the contract are presented as exam-
ples for limits of the principles of pacta sunt servanda, nominalism and guarantee
liability of the debtor of monetary obligations due to a financial crisis.
– The interest rate is inappropriately high. As a thumb rule, this is the case if the
contractual interest rate is 100 % above the market rate in relative terms or 12 %
above the market rate in absolute terms.
– The creditor (guarantor) has, in connection with a guarantee signed e.g. by one
spouse for a loan of the other or by a child (a “young adult”) for a parent, inap-
propriately taken advantage of the emotional bond between debtor and guaran-
tor to induce the signature of the guarantee.
– The creditor has inappropriately trivialized a significant and burdensome con-
tractual risk.
– It is foreseeable for the creditor that the debtor is not able to honour his credit.
The fact that at the end all the exemplary cases of initial immorality have landed
before the Constitutional Court in Germany shows the constitutional background of
the juridical interference in favour of the weak contracting party. This observation
leads us to the conclusion that the judicial interference in case of severe subsequent
imbalance overlaps even with constitutional ethics.
Summa summarum: The chronological distinction between initial and subse-
quent impairments, consequently seem to have lost their logical significance in
legal considerations.
A different interaction attracts our attention in the frame of the concurrence
between subsequent impairments, namely the interaction between frustration and
impossibility.
In the framework of “impairments of performance” the difference between frus-
tration and impossibility is expressed usually only in degrees. It is difficult to draw
the borderline. Thus, in some countries, like Britain, frustration overlaps mostly
with impossibility.
The bold and interesting proposal to submit frustration concisely under the term
of impossibility brought up in the Greek report is parallel to this approach, identify-
ing frustration with impossibility.
This trend to cross over different chronological and logical impairments leads us
to the conclusion that the jurists mostly look friendly and warm towards the possi-
bility of intervention into the contract in favour of the impaired party.
The discussion around the article 79 of the Convention on International Sales of
Goods (CISG) whether frustration can be submitted under impossibility may also
be mentioned as an example of the close relation between impossibility (force
majeur/hardship) and frustration. The recent opinion accepts hardship as a fact
which may be submitted under article 79 CISG.
1.7 General Rules and Special Regulations in Legislation

and Jurisdiction Authorizing Expressly an Intervention
into the Contract
In many national reports we meet specific rules dealing with the unexpected change
of circumstances arising from financial crises.
The soft law instruments, namely Principles of European Contract Law (PECL),
Unidroit Principles on International Commercial Contracts (PICC) and Draft
Common Frame of Reference (DCFR) seem to build a milestone regulating the
intervention into the contract in case of fundamental and extraordinary change of
circumstances in the frame of general rules.
Soft law materials prefer obviously to stipulate the intervention into the contract
in a general provision. Under the heading “Change of Circumstances” in article
6:111 “the Principles of European Contract Law”, as well as under the heading
“Hardship” in Section 6.2 “the Unidroit Principles on International Commercial
Contracts”, moreover under the heading “Variation or termination by court on a
change of circumstances” in Section III-1: 110 “the Draft Common Frame of
Reference” show clearly this trend.
The Unidroit Principles have regulated hardship explicitly as a case of
frustration:
If a situation occurs which alters fundamentally the equilibrium of the contract, then the
burdensome party may request renegotiation.
The Principles of European Contract Law enclose a similar regulation with the
additional sanction that the party rejecting renegotiation may be condemned to pay
compensation.
In recent years, there is an obvious trend towards the codification of general rules
authorizing an intervention into the contract. For instance, there are “general provi-
sions” in the Civil Codes of the Czech Republic, Russia, Brazil, Greece, Denmark,
Germany, Italy, Portugal and Turkey.
Also in Argentina, we can observe a draft general provision anticipated for the
Civil Code.
According to the recent project CO 2020 Art. 19 in Switzerland “the court may
adjust or avoid the contract if according to the principle of good faith the perfor-
mance of an obligation becomes unreasonable due to an unforeseeable change in
circumstances.
Recently, even the jurisdictions under the influence of the French Code Civil
have introduced provisions related to the change of circumstances in their legisla-
tions; for instance article 1271 of the Romanian Civil Code and article 1467 of the
Italian Codice Civile.
The article 388 of the Greek Civil Code is probably the best example of a general
provision on unforeseeable change of circumstances. It combines and formulates
the established theoretical roots and legal prerequisites for an intervention into the
contract in a very successful manner:
18 R. Serozan
If, having regard to the requirement of good faith and business usages, the circumstances
on which the parties had based the conclusion of a bilateral contract have subsequently
changed on exceptional grounds that could not have been foreseen and the performance due
by the debtor, taking also into consideration the counter-performance, as a result of the
change has become excessively onerous, the Court may at the request of the debtor and
according to its appreciation reduce the debtor’s performance to the appropriate extent or
decide the dissolution of the contract wholly or with regard to its performed part.
This national codification – trend moves closer to the globally recognized rules
as it follows the examples of the soft law instruments.
For instance, all the soft law instruments have been taken into consideration dur-
ing the last stages of the reform of German BGB. The Principles of European
Contract Law has set an example for Polish rules on changed circumstances while
Czech rules are influenced by Unidroit Principles on International Commercial
Contracts.
Besides all these “general rules” there are also several specific regulations refer-
ring to particular situations mentioned in different national reports, especially in the
Canadian, Romanian, Polish and Turkish reports.
These special provisions render evidently both the theoretical instruments and
the general national provisions regarding the intervention into the contract
unnecessary.
On the other hand, also various practices of the courts have adopted specific rules
dealing with the change of circumstances in certain situations.
Let us have a glance on some of the interesting examples that we have selected
from different national reports:
(a) The employee is allowed to terminate the labour contract when his/her material
interests have fundamentally changed.
(b) The subsequent financial difficulty, mainly the insolvency of the obligor, enti-
tles the creditor to rescind from the contract, if the obligor does not offer a suf-
ficient guarantee.
(c) The donor who has unexpectedly fallen into financial difficulties may revoke
the promise of donation.
(d) If a trust has ceased to meet the intention of the settlor as a result of unforesee-
able circumstances which make the pursuit of the purpose of the trust too oner-
ous a closely related another purpose may be substituted.
(e) If the execution of a charge becomes too burdensome for the legatee, for the
donee or the trust (in Turkey also for the donor) a cancellation or alteration of
the charge may be invoked.
(f) The disturbance of the equivalence of accomplishments in the contract for work
invokes termination or adjustment in favour of the disadvantaged party.
(g) In many countries the maintenance (alimony) is always adapted to the changed
circumstances in certain intervals according to a mobile scale (échelle mobile).
(h) In many countries also a significant change of flat rates invokes the possibility
of adaptation of the rate.
(i) The Greek legislation has recently enacted special laws on commercial leases,
which allow the parties to terminate the contract in case of unforeseen financial
hardship.
(j) Furthermore, by virtue of special legislation intended to relieve heavily indebted
debtors of loans, the Greek Law widened the possibility of bankruptcy in favour
of non – commercial persons in cases of financial crisis.
1.8 Conditions for Intervening into the Contract
The conditions aiming to justify an intervention into the contract may arise from
general or special provisions. However, they are roughly the same in all legal
instruments.
(a) Occurrence of the unexpected event after the conclusion of the contract.
(b) Fundamentality of the change of circumstances.
(c) Extraordinariness.
(d) Unforeseeability (impévisibilité).
(e) Not being responsible for the fundamental, extraordinary and unforeseeable
event (the disadvantageous development being beyond the control of the disad-
vantaged party).
(f) No compulsory obligation to carry the burden of risk (such an obligation exists for
example in the frame of warranties, insurances and stock market transactions).
(g) Not having performed the obligation yet or at least performed it with an explicit
reservation.
(h) Unreasonableness (Unzumutbarkeit) of the present performance.
Let us point out right at the beginning that the separating border between these
objective and subjective requisites for intervention are quite fluid. For example, an
extraordinary event is at the same time unforeseeable and vice versa.
These requisites are altogether clearly formulated in the Italian Codice Civile
(Article 1467/1469):
(a) The transaction must have been affected fundamentally.
(b) The extraordinary event affecting the transaction must not have been foreseen
by the disadvantaged party.
(c) The burden resulting from the event must not be attributed to one party by any
particular legal or contractual rule.
Let us now try to clarify the requisites for intervention into the contract in detail:
At the first stage, the unexpected event must have occurred after the conclusion
of the contract. Otherwise the negatively affected party may only be able to avoid
the contract on the ground of mistake.
If a party had an erroneous perception of the already existing burdensome cir-
cumstances while concluding the contract, that party may only invoke the provi-
sions of error. İn this case there is anyway no place for intervention.
20 R. Serozan
An erroneous forecast regarding future facts at the stage of the conclusion of the
contract is generally submitted under the cessation of the contract bases but not
under initial error as to the motive.
If the existence of an initial error as to the motive is also approved for the case
of such erroneous prediction, then the scope of application of the provisions regard-
ing error shall inevitably expand on the account of the scope of the application of
the provisions regarding subsequent frustration. This would lead to different legal
consequences as pointed out before.
The other condition for the intervention is the essential (fundamental) change of
circumstances. It should be noted that only basic and important changes might lead
to an excessive onerousness and considerable destruction of the reasonable equilib-
rium of mutual obligations. In other words, the change must have caused severe
consequences (Article 1467/1469 of the Italian Codice Civile).
Another requirement for intervention into the contract is the “extraordinariness”
regarding the changed circumstances. Indicating that the changed circumstances
must be highly unlikely to occur.
This requirement is stressed in many national reports while it is not sought under
the Principles of European Contract Law and Unidroit Principles on International
Commercial Contracts. The Draft Common Frame of Reference, however, sets out
the condition of an exceptional change of circumstances.
An additional condition is “unforeseeability”. It means that supervening extraor-
dinary circumstances and respectively their effects must be unforeseeable at the
time of the conclusion of the contract.
At the stage of conclusion of the contract, the parties have a narrow vision on the
future circumstances. Their prospect to a supervening event is usually limited with
the ordinary course of their businesses.
Accordingly, while the parties allocate the contractual risks on the basis of cer-
tain shared assumptions, there are certain supervening risks that are usually not
anticipated and respectively allocated at the conclusion of the contract.
The condition of unforeseeability, determines exactly whether a reasonable per-
son in the same circumstances as the debtor would have foreseen the occurrence of
these events or not.
The requisite of unforeseeability is referred with different formulations in almost
every national report, as well as in the Principles of European Contract Law,
Unidroit Principles on International Commercial Contracts and the Draft Common
Frame of Reference.
Significantly, the Draft Common Frame of Reference highlights unforeseeability
of the circumstances together with their effects in its remarkable formulation: “The
debtor did not at that time take into account, and may not reasonably be expected to
take into account, the possibility or scale of the change of circumstances”.
Nota bene: Unforeseeability is in the meantime and contradictorily utilized as an
item for limitation of damage compensation in many soft law sources. An unforesee-
able damage cannot be compensated.
On the other hand, “unforeseeability” is also a hindrance for security

transactions. An unforeseeable obligation can neither be secured through surety
nor be secured through pawn.
Moreover, the event must have occurred beyond the control of the disadvantaged
party. The disadvantaged party can only rely on the possibility of intervention if
these extraordinary circumstances are not self-induced or originated from the disad-
vantaged party’s sphere of impact. In short, the event must not fall within the disad-
vantaged party’s sphere of responsibility.
Among the soft law instruments, Unidroit Principles on International Commercial
Contracts enclose this condition in its article 6.2.2.
In addition to these conditions, the specific risk should not belong to the contrac-
tual or statutory risk typically allocated to the disadvantaged party. In aleatory con-
tracts the authorisation for intervention into the contract is excluded according to
the risk allocation resulting from the contract or from the law.
For instance in warranties, insurances and stock market transactions, each party
carries his own risk due to the typical contractual risk allocation.
The condition of “risk allocation” is also emphasized in British, Danish, Italian,
Russian and Romanian reports, where the lack of express or implied assumption of
risk is considered as a basic prerequisite for intervention.
For example, the Italian Codice Civile underlines in article 1467 the fact that the
subsequent onerousness ought to be beyond the contractual risk allocation.
A further condition attracts attention: In order to invoke the remedies for inter-
vention into the contract, the disadvantaged party must not have performed his obli-
gation yet or at least must have performed it under reserve. This condition is sought
expressly in Croatian and Turkish laws but interestingly not in the soft law
instruments.
In fact, it would be highly controversial to claim for an intervention into the
contract due to the excessive onerousness of the performance after the fulfilment of
the contractual obligation without any reservation.
Finally, the performance under the changed conditions must seem unreasonable
(unzumutbar). In a different wording expressed; the creditor’s claim of performance
against the debtor must appear as an offend against the principle of loyalty and good
faith.
It must be emphasized that the last yet not least requisite of unreasonableness
(Unzumutbarkeit) has an overweight compared with the weight of the other
requisites.
Thanks to its constitutional weight this principle of unreasonableness determines
at long last the final approval for intervention into the contract.
Similar to the legal instruments, the requisites also overlap with each other.
Almost all the requisites can substitute each other.
22 R. Serozan
1.9 Flexible Approach towards the Conditions Justifying

an Intervention
It is not always regarded as necessary that all the conditions are fulfilled altogether.
The lack of a condition can very well be compensated by the overweight of another
condition. In other words, both objective and subjective conditions are evaluated
collectively with a far-sighted and global vision.
This sophisticated approach is developed from the Austrian “interactive system”
(bewegliches System) or “sand-heap theory” (Sandhaufentheorem), which was
originally accepted in the cases of deficiency of intention (Willensmangel) and
usury (Wucher).
An example for the application of this interesting theory can be found in the
Turkish report. Although inflation and devaluation is a common disaster of the
country which ought to be foreseen by the parties, the effect of this foreseeable
disaster may take on such huge measures that the lack of the condition of unforesee-
ability can be considered as compensated through the overweight of the other con-
ditions of extraordinariness of the event and unreasonableness of the performance;
in other words, the requisite of unforeseeability may still be considered as
fulfilled.
A similar tolerance is shown towards the requisite of the lack of performance or
at least a performance with reservation in Turkey. If the debtor has performed his/
her burdensome obligation in good faith, then he may still be found worth being
protected in the frame of a special constellation of facts.
Also the Greek report emphasizes the fact that there may be cases where the rigid
requisites are not fulfilled entirely and yet it would seem unfair to deprive the debtor
of protection against the harsh effects of the pacta sunt servanda principle.
At this point, the overweight of the requisite of unreasonableness of the actual
performance comes clearly to light.
Besides the flexible and tolerant approach towards the requisites of intervention
into the contract by the means of the sand-heap (Sandhaufen) theory, the refining of
the acquirements for intervention by means of a “social component” attracts special
attention. Corresponding to the needs of a special social protection of economically,
socially and (or) intellectually weak persons the acquirements for intervention in
favour of them are vigorously lowered.
At the last instance, the social component reduces the acquirements regarding
the intervention and achieves herewith a wide application of exceptions to the rules
of pacta sunt servanda, nominalism and guarantee liability.
A special provision grounded on a social rationale in favour of the lessee in
Québec is remarkable: A lessee who has suffered a reduction of income or a change
in the composition of his own household may reduce his flat rate.
In Denmark the general provision which predicts that a contract may be modified
or set aside in whole or in part, if its enforcement would be unreasonable or contrary
to the principle of good faith and fairness was in fact designed mainly to protect
consumers on the ground of social considerations.
The revision of the terms of automatic rent increase in sub-lease contracts and
the acceptance of claims to return the excessive deposits paid for country club rights
in Japan lies on a similar social line.
Under Brazilian consumer law, the condition of unforeseeability is not required
for consumers (Law 8,078/1990, article 6, V). This indicates a clear choice for con-
sumer’s benefit in Brazilian law.
Also in Taiwan, the Financial Consumer Protection Act of 2011 constitutes an
important basis for the protection of the financial benefits of the consumers.
According to article 7 of the Financial Consumer Protection Act, unfair contractual
provisions are not valid against a financial consumer. This article is also mobilized
on behalf of the consumer for subsequent impairments.
The flexible attitude towards the conditions in favour of the socially weak con-
sumer and tenant in Québec, Denmark, Japan, Brazil and Taiwan is worth to be
considered as a guiding example. This approach develops in a most interesting way
the social dimension of intervention in favour of the socially weak person who is
worth to be protected. This partisanship is also an imperative of the constitutional
principle of “social justice and welfare state”. This is an important point which is
usually and unfortunately ignored while determining the scope of intervention.
Nevertheless, in some jurisdictions where the grand banks activate an efficient
lobby, the courts regularly reject the claim of the borrowers to reduce the extremely
increased interest rates on loans.
1.10 Legal Consequences and Available Remedies
The legal remedies provided in light of the theoretical instruments justifying an

intervention in cases of unexpected and burdensome financial developments are as
follows:
(a) invitation to renegotiate, regarding the possible means in order to find a com-
promising solution against the suddenly changed circumstances,
(b) adjustment of the contract according to the unexpectedly changed circum-
stances or,
(c) the termination of the contract, as an ultimate remedy, probably combined with
a compensation of equity for sacrifice (Aufopferungsanspruch) in favour of the
party who endures the termination of the contract. From the other perspective;
the party who is released from the binding force of the contract has to compen-
sate his relief.
Renegotiation is the most efficient remedy for the change of circumstances since
it enables the parties to find a mutual resolution. Renegotiation is not an all-or-
nothing remedy like the termination of the contract since it provides the parties
with the full discretion of reallocating the risk and regenerating the contractual
balance.
24 R. Serozan
As a matter of fact, the duty to renegotiate is based on the principle of pacta sunt
servanda as well as on the principle of loyalty or fairness. After all a faithful partner
has to take all efforts to settle the dispute fairly.
Although most jurisdictions are reluctant to provide a duty to renegotiate in good
faith, soft law instruments have set up the duty to renegotiate as a primary remedy.
The disadvantaged party is entitled to request such renegotiations according to
art. 6.2.3 1 PICC; art. 6:111 2 PECL and Section III-1:110 DFCR. Other remedies
may only be invoked in case of failure of the parties to find a solution within a rea-
sonable time.
Surprisingly, the French Cour de Cassation, which categorically refused the the-
ory of “imprévision”, has (in the case “Huard” and in some other cases) recently
accepted the obligation to renegotiate contracts to rebalance disproportionate con-
tractual duties between the parties.
Even before this “nouvelle vague” in the French jurisdiction, many French jurists
had accepted the duty to renegotiate as a reflection of the principle of loyalty, good
faith and contractual solidarity.
The opening of the possibility of renegotiation means at the same time the open-
ing of the opportunity to revise the contract.
In fact, the process of renegotiation will in most cases lead inevitably to the revi-
sion of the contract.
This recent approach, arising from the general principle of loyalty and good
faith, is also observed in the United Kingdom. In Quebec, the principle of good faith
is generally recognized and although it has not yet been applied to change of cir-
cumstances cases, some authors have suggested it as a tool to enable the courts to
temper the principle of pacta sunt servanda.
The possibility of such a duty to renegotiate is also stated in the Turkish report.
According to the Turkish reporter, such duty deduced from the general principle of
good faith and the duty of cooperation, would be more consistent with the economic
reality, since application to the court in order to invoke other remedies is more
expensive and time consuming for both parties.
Moreover, in the United States, there is an increasingly liberal attitude towards
the way of renegotiation depending on good faith as stated in the national report.
This attitude most probably originates from the effects of frustration in the Common
Law tradition.
Frustration causes namely an automatic (eo ipso) release of the parties from the
contract and this fact makes it necessary to renegotiate about a new contract with
different terms.
Furthermore, it is emphasized that the violation of the duty to renegotiate in good
faith should not lead to compensation, but to the loss of the right to adjust and ter-
minate the contract. In other words, the duty to renegotiate is generally not evalu-
ated as an obligation in a strict sense, but merely as an “Obliegenheit,
incombance”.
Nevertheless there are some regulations or jurisdictions, which attach a compen-
sation for the violation of this obligation. The Principles of European Contract Law
and the Québec Law constitute such examples.
The adjustment (revision) of the contract in order to restore its disturbed

equilibrium is anyhow the more likely remedy in the majority of disputes.
The ideal remedy specified for the change of circumstances is indeed the adjust-
ment of the contractual balance.
The adjustment of the contract is available in Argentina, Brazil, Croatia, the
Czech Republic, Denmark, Germany, Japan, Poland, Portugal, Romania, Taiwan
and Turkey while it is still debated in Québec.
Revision of the contract requires strong court interference to the contract as the
courts benefit an extensive discretion in allocating the risk in accordance with the
principle of loyalty.
Looking by the perspective of the parties, revision of the contract is a remedy,
which does not provide much certainty since it is up to the court to judge on the new
allocation of the contractual risk. Probably due to this reason, Common Law juris-
dictions are reluctant to accept the revision of the contract as a remedy.
The most common remedy and radical against the change of circumstances is the
termination of the contract. It is however an unyielding “all-or-nothing” remedy,
which lets us miss the desirable flexibility and the mutual concession. By the way,
its utilization leads to the most severe breach of the principle of pacta sunt servanda.
That is why it is considered as an “ultima ratio”.
The all or nothing approach of termination as being the ultimate remedy can be
avoided when and if the terms of the contract are adjusted.
Termination of the contract as a consequence of changed circumstances does not
apply ipso iure, but requires the express declaration from the side of the burden-
some party. Until then the contract remains binding as it is. However, in Common
Law the legal consequence of the doctrine of frustration is an automatic (eo ipso)
release of the parties from the contract as far as frustration is identified with
impossibility.
Nota bene: In continuous obligations (Dauerschuldverhältnisse) the right of ex
tunc rescission of the contract is to be substituted by the right of ex nunc termination
(§ 313 BGB).
As a matter of fact, in contracts to be performed in short terms such as most
simple sales contracts, the short period between agreement and performance will as
a rule not make an unforeseeable change of financial conditions possible.
Therefore, the “ex nunc” termination of the continuous contracts with perfor-
mances over a long period of time such as lease contracts will constitute the general
rule. The “ex tunc” rescission will remain as an exception.
It is rather uncommon to claim for an indemnity of equity for sacrifice
(Aufopferungsanspruch) in favour of the party who endures the termination of the
contract.
However, it is expected from the party who is released from the binding force of
the contract to compensate his relief.
The compensation for the sacrifice of his/her partner (Aufopferungsanspruch) is
especially provided in Turkish Law in different legal provisions. These provisions
may be developed to a general principle on a ground of a global analogy (Analogia
iuris).
26 R. Serozan
It is further acknowledged in the Brazilian report that the termination of the

contract is combined with a claim of compensation for the party who would have
benefited from the contract.
Similarly, it is an available remedy under British Frustrated Contracts Act 1943
and Article 2.2 of the Singapore’s Frustrated Contracts Act to claim an equitable
compensation for the expenses incurred in regard of the possible performance of the
contract.
Furthermore, the possibility of such a remedy is discussed in the national reports
of Croatia and Portugal. Accordingly, at the request of a party, the judge who
decides on the termination or adjustment of the contract may further decide on such
an indemnity of equity for the damage suffered.
1.11 Priority Between Remedies
As stated in the foregoing explanations; renegotiation has recently become a promi-

nent remedy accepted in soft law instruments and in jurisdictions following these
instruments. Where available, renegotiation is the primary remedy. For instance in
the Czech Republic, in Québec and in Romania, the parties ought to renegotiate
prior to requesting the adjustment or the termination of the contract.
However, if the parties are unable to find a solution within a reasonable time, the
legal instruments may either provide for a termination of the contract at a date and
on terms to be fixed by the court or alternatively, for an adjustment of the contrac-
tual equilibrium by the court. In such a case, soft law materials do not set priority
between these options.
In jurisdictions where only adjustment and termination of the contract are avail-
able, usually the priority issue between these remedies is left to the courts’ discre-
tion. But usually, the courts shall provide adjustment of the contract and only if an
adjustment is in concreto not appropriate, the contract shall be terminated.
This approach is accepted in Germany, Taiwan and Turkey where priority is
given to the adjustment since termination is considered to be an ultimate remedy,
which contradicts with the principle of pacta sunt servanda even more violently than
the remedy of adjustment.
1.12 Role of the Courts
If the parties fail to reach an agreement regarding the adjustment or termination of

the contract on the framework of the duty to renegotiate or if there exists anyhow no
such duty in the legal system, then the party who is the victim of the financial crisis
may generally use his alternative rights to adjust or terminate the contract without
applying to the court.
As a matter of fact, these two alternative rights constitute typical

“Gestaltungsrechte” (droits formateurs) authorising the holder to alter and end the
contract with a unilateral declaration.
Nevertheless, there is no hindrance to apply to the court for such a unilateral
declaration. In this case the unilateral right to alter or end the contract will be
declared in the application for relief. The following judgement will merely be a
declaratory judgement.
On the other hand the addressee (recipient) of a unilateral declaration of adjust-
ment or termination may also apply to the court in order to revoke a negative declar-
atory judgement about the unjust declaration of his contract partner.
The application to court in general seems as a waste of time and money as long
as the parties complete their necessary or voluntary renegotiations with a successful
agreement.
Only in cases where the parties cannot solve their problem by themselves the
court shall inevitably be obliged to end the dispute by itself with different scopes of
authorization in each country.
1.13 Summary and Conclusion
It is highest time to draw conclusions. Let us now try to summarize our essential
conclusions:
– One of the most controversial dilemmas of contract law is whether the unex-
pected change of circumstances after the conclusion of the contract may under
certain conditions be taken into account and if so, which legal consequences can
be attached to this alteration of circumstances.
– The difficult task of the jurists is to harmonize the principles of “pacta sunt ser-
vanda”, “nominalism” and “guarantee liability of the obligor of monetary obli-
gations” with the principle of “fairness and reasonableness”.
– The generally accepted compromising rule is well-known: A contract is binding
and it must be performed in accordance within its terms. But if the equilibrium
of the contract was fundamentally altered or the fulfilment of an obligation
became excessively onerous, then the disadvantaged party is entitled to request
intervention into the disturbed contract.
– The legal approaches of various jurisdictions provide different answers and solu-
tions to the problem if, under which conditions and how existing contracts can be
renegotiated, adjusted or terminated as in response to unexpected
circumstances.
– The national approaches differ not only towards the matter of theoretical basis,
but also in the matter of conditions as well as remedies. It is distinctly observed
that some jurisdictions are restrained to the intervention into the contract while
others are on the contrary progressive.
28 R. Serozan
– The reluctant or cautious attitude of many jurisdictions to the codification of

special provisions despite the long-lasting discussions, originates from their dif-
ferent respect towards the principle of “pacta sunt servanda”.
– A distant attitude is clearly observed in France where the provisions of the con-
tract have the force of law as between the parties. It is a common fear that a
concept of intervention into the contract due to changed circumstances would
weaken the sanctity of the contract.
– On the other hand, a tolerant approach is ascertained in Italy, Greece, Turkey, the
Czech Republic, Portugal, Russia, Argentina and Brazil.
– These differences seem to be determined predominantly by the different fre-
quency and intensity of financial crises in these countries and probably also by
the influence of the financial, political and social forces of the respective
countries.
– In the last analysis, it is acknowledged that the principle of good faith and fair-
ness, which accompanies the jurists in all countries as a “leitmotiv” has priority
over the principles of “pacta sunt servanda”, “nominalism” and “guarantee lia-
bility”. The idea of “contractual morality as a leading guide is determining the
new way and wave.
– The far-reaching, pragmatic, flexible, tolerant application of intervention into the
contract can be verified by the fact that among the legal instruments “good faith”
and among the requisites “unreasonableness” (Unzumutbarkeit), both items of
discretion, have gained priority over the relatively strict other instruments and
requisites.
– Good faith as an overwhelming principle is especially emphasized in the Greek
report where we can read that the judge is authorized to revise or even terminate
the contract directly by applying the general principle of good faith without
being obliged to recourse to the special provision of “rebus sic stantibus”.
– The terms of equitable discretion like contractual justice, contractual morality,
loyalty, fairness, reasonableness and good faith which are invoked to determine
the limits of intervention have transformed the traditional strict approach towards
the binding force of contract into a pragmatic, flexible, tolerant and liberal
approach towards interventionism.
– All the prerequisites considered for intervention are after all determined accord-
ing to an equity criterion.
– It is evident that it was the basic idea of contractual justice (iustitia commuta-
tiva), which influenced this generous approach in favour of interventionism.
– It is remarkable that in the last decade a tolerant and generous approach in favour
of interventionism overwhelms perpetually the traditional approach on behalf of
the principles of pacta sunt servanda, nominalism, guarantee liability and the
classical one-sided risk allocation.
– The frequency of financial crises and their devastating consequences for the con-
tracting parties needing urgent protection must have accelerated this process of
interventionism.
– The special protection of the socially weak party is indicated through reducing
the rigid conditions for intervention in favour of the employee, consumer, lessee
and maintenance creditor. This social protection cited in many national reports,
is to be generalized and developed in light of the basic idea of contractual equity.
– The unfortunate contrary approach in favour of the banks and against the bor-
rowers rejecting their claims for intervention obviously caused by lobbying
activities of the banks is to be regretted.
– The main idea of “the duty to renegotiate” is an interesting and desirable appear-
ance of a successful compromise between “the obligation to perform the contract
at any cost” and “the duty of loyalty”.
– Renegotiation compromises and harmonizes the two contradictory poles of pacta
sunt servanda and the right to intervene into the contract in a sophisticated
manner.
– Even if renegotiation is considered as a concession from the principle of pacta
sunt servanda, it must be admitted that it is at the same time a strong supporter of
the same principle.
– In the light of this dialectical interaction the progress of the idea of renegotiation
is to be supported at any rate.
– The termination of the contract should be considered as an ultimate remedy
(ultima ratio), to be applied only if the remedy of adjustment fails.
– Consequently, for the sake of legal security, it is advisable to codify the special
matter of the binding force of a contract and its exceptions with all its dimensions
within the framework of legal provisions. Such an approach shall maintain the
legal certainty and security and further will motivate the parties to reach to a
mutual agreement in order to avoid the intervention of the court into the
contract.
Italy, Germany, Greece, Turkey, the Czech Republic, Portugal, Russia,
Argentina, Brazil, Unidroit Principles, Principles of European Contract Law and the
Draft Common Frame of Reference have already traced this positive track.
It must though be admitted that there are opposing votes pleading for a judge
made “case law” reasoning from case to case.
The scope of discretion referring to the concepts of good faith, fairness and con-
tractual solidarity and determining nearly all the prerequisites of intervention is
extremely broad and flexible. This fact supports evidently the “case law” – approach.
Part II
National Reports
Chapter 2
From Crisis to Crisis: Weakness of Contracts
in Argentina
Julio César Rivera
Abstract By the end of the nineteenth century and the beginning of the twentieth
century, Argentina was the destination of hundreds of thousands of immigrants who
considered it was a land full of opportunities, with an extraordinary future (The
Royal Spanish Academy Dictionary in its 1913 Edition stated: It all leads to believe
that Argentina is called to compete with the United States of America, due to the
wealth and extension of its land as well as for the activity of its inhabitants and the
development of its industry and commerce, which progress could not be more
noticeable.). The reasons of its decline are hard to find, and even harder to explain.
Some people state that the legal and judicial answers to those crises, which weak-
ened the contractual nexus, legitimated the governmental interventions regarding
private contracts and even abandoned nominalism, contributed not little to speed up
said process of decline, which frustrated such hope.
2.1 Chronology of Argentine Crisis and Judicial

and Legislative Solutions
2.1.1 The Civil Code and the Pacta Sunt Servanda Principle
The Argentine Civil Code, enacted in 1869 and in full force and effect since the 1st
of January, 1871, until the 1st of August, 2015, set forth as a general principle that
contracts are law with binding force between parties (Section 1197), and that there
were no explicit exceptions to such principle. Thus, our Civil Code did not foresee
the possibility to terminate or review the contract based on the changing of the cir-
cumstances existing at the time of execution.
J.C. Rivera (*)

Faculty of Law, University of Buenos Aires, Buenos Aires, Argentina
e-mail: juliocesar@rivera.com.ar

34 J.C. Rivera
2.1.2 Reactions in View of the Successive Economic Crisis
During the twentieth century Argentina suffered severe economic and financial cri-
ses, which caused specific legislation and case law to moderate the effects of the
pacta sunt servanda principle. This even lead the 1968 amendment to the Civil
Code to include the so called “theory of unforeseen contingencies”. These facts will
be examined chronologically.
2.1.3 Repercussions of World War I
At the beginning of the twentieth century, Argentina was a country in marked

expansion, which sheltered tens of thousands of immigrants from all over the world,
based its economy on an agro-export model, and which currency was convertible
into gold.
The Great War caused some effects in general economy, not only for the difficul-
ties in collecting from exportations, but also for the limit to importation of industrial
goods. Hence, legislation intervened creating some palliatives to the situation of
debtors, and also eliminating convertibility of the Argentine peso.1
Thus:
– Law No. 9478, dated 9th August, 1914, was enacted, which set forth an exten-
sion of 30 days to fulfill monetary obligations;
– Upon expiration of the term, “obligations in gold” were extended, while conver-
sion of cash into gold was suspended, save for those cases in which creditors
accepted payment in cash at the conversion rate set forth in Law No. 3871,
Section 1.
On the other hand, massive immigration caused a severe crisis in urban hous-
ing. As a consequence, in 1921 Laws Nos. 11156 and 11157 were enacted, which
set a minimum term for agreements for renting urban real property, froze for 2
years the price of rents in force as of the 1st of January, 1920 (Law No. 11157
stating so was enacted on 19th September, 1921) and authorized dismissal of
legal actions for eviction due to lack of payment if defendants settled the amount
owed (pursuant to the frozen price), plus interest and an additional sum for
expenses.
1
Robledo (2002), p. 541.
2 From Crisis to Crisis: Weakness of Contracts in Argentina 35
The Argentine Supreme Court of Justice declared the constitutionality of the

aforementioned laws,2 stating – among other reasons – that Congress had the power
to limit the rights of individuals, if the measure is temporary and of emergency.3
2.1.4 Some Effects of 1929 Crisis
The 1929 global financial crisis seriously affected Argentine economy. Again, both
legislation and case law acted to shelter the weaker portion of the population.
Law No. 11741, enacted in 1933, stated a mortgage extension, which was imple-
mented by a reduction of interest and a deferral period of 3 years for capital payable
and of 6 months for yields.
The unconstitutionality of the captioned law was brought to the Argentine
Supreme Court, which confirmed its full force.4 The Court was inspired by the
U.S. Supreme Court of Justice case law, which had declared the constitutionality of
a law in the State of Minnesota which authorized recovery of estates sold in foreclo-
sure auctions for the term the Courts considered fair and equitable, limited to the 1st
of May, 1935.5
To sum up, the Argentine Court, also following the U.S. case law, acknowledged
the existence of a power of the State, implicit in all contracts, to intervene in them
when exceptional emergency reasons allow so, in case the limitation is reasonable
and temporary.
Subsequent case law of the Argentine Supreme Court which has validated almost
inexorably all legislative and judicial interventions in contracts is inspired by this
foundational precedent which has set forth the bases of the so called emergency
doctrine.
Other inferior courts also ratified the constitutional validity of the laws which
authorized fulfillment in national currency of the obligations which had been fixed
in gold at the time the convertibility was in force.6
2
National Supreme Court, 28.4.22, Decisions 136–164.
3
In the same paragraph stating so, the National Supreme Court recalls that a similar law enacted
by the District of Columbia was declare unconstitutional by the U.S. Supreme Court in the case
“Block”, decision 18.4.21.
4
National Supreme Court, 7.12.34, Decisions 172:21.
5
The cited resolution of the U.S. Supreme Court of Justice is entitled Home Building, dated
January 8, 1934. Other precedents of U.S. Courts are invoked, which ratified emergency laws
regarding rents which avoided evictions and authorized the courts to fix the price of rents.
6
Civil Court of Second Instance, 30.12.38, LL 13-408. This court order adopted the idea that it was
necessary to avoid “economic bankruptcy of debtors”, as done by German case law further to both
wars.
36 J.C. Rivera
2.1.5 First Court Decisions and the Evolution of the Authors’

Opinion regarding Inflation Effects
Argentina started suffering the relatively constant inflation processes as from 1946,
thus since 1950 the first authors’ opinions7 and some judicial decisions addressing
the effects of inflation upon contracts appeared.8
2.1.6 1968 Amendment to the Civil Code: Introduction

of the “Theory of Unforeseen Contingencies”
In 1968 the most important amendment to the Civil Code was passed; it only com-
prised a 10 % of the sections, however, the basic principles upon which the nine-
teenth century codification had been based were modified. Thus, as aforementioned,
the 1871 Code was based on principles such as the absolute force of the word given
(pacta sunt servanda), negligence as ground for civil responsibility, the absolute
nature of property law and the family organized upon an indissoluble marriage and
paternal authority. The 1968 amendment significantly moderated the pacta sunt ser-
vanda principle by establishing the general principle of good faith governing the
execution, interpretation and enforcement of contracts; the theory of unforeseen
contingencies, the abuse of law (“l’abus du droit”), and the gross disparity as a vice
of contracts. In the other fields, the strict liability was adopted and the absolute
nature of ownership was restricted; therefore, pursuant to scholars’ opinion, as from
1968, in fact, “a new Civil Code” was in force.
Regarding the matter in review, the “theory of unforeseen contingencies” was
included in section 1198, namely:
All contracts must be executed, interpreted and enforced in good faith and according to
what the parties have or could have credibly understood, acting with care and precaution.
In the case of bilateral commutative contracts and of unilateral contracts for consider-
ation and commutative contracts of continuous or deferred execution, if consideration of
one of the parties becomes excessively onerous due to an extraordinary and unpredictable
event, the detrimented party may request termination of the contract. The same principle
shall be applied to aleatory contracts when excessive onerousness is caused by reasons
beyond risks inherent to the contract.
7
Spota (1953) and Rezzónico (1954) claimed the unenforceability of contracts affected in their
commutativeness, based on the abuse of law doctrine. The abuse of law was not stated in the Civil
Code; however, the 1949 Constitution had introduced a concept which expressly prohibited it (sec-
tion 35), which was the basis of the authors’ opinion and some court orders stating that the inten-
tion to fulfill a contract affected by inflation constituted an abusive conduct.
8
Thus, some court decisions revised the prices fixed in some contracts based on the principle of
good faith (LL 75-255; ED 17-606), equity (LL 104-555), presupposition doctrine (National Court
of Second Instance, chamber I, 2.10.51, ED 18-97, summary 8), unforeseen events (National Court
of Second Instance., 25.8.65, LL 121-645).
In the case of contracts of continuous execution, termination shall not affect effects
already satisfied.
Termination shall not be applicable if the detrimented party acted with negligence or if
he/she is in arrears.
The other party may prevent termination by offering an equitable improvement of the
effects of the contract.9
Implementation thereof by case law has been frequent, since subsequent eco-
nomic crises have been deeply serious.
2.1.7 1975 Hyperinflation: Revaluation of Monetary

Obligations
In June 1975 an exceptionally deep hyperinflation process erupted, which gave rise
to a vast authors’ activity in favour of revaluation of all obligations, including mon-
etary obligations, as made by German case law in 1923. This concept was adopted
by the Supreme Court case law in 1976.
The Supreme Court stated that considerations should necessarily be equitable in
those conditions governed by commutative justice, and particularly incorporated a
criterion regarding money itself. In a first precedent, the Supreme Court anticipated
that, if creditors should accept payment of a depreciated currency which purchasing
value is inferior to the one it had at the time the loan was arranged, there would be
an unconstitutional infringement to the right of ownership.10 In subsequent pronun-
ciations, the Court resumed the matter of the purchasing value of money, stating as
follows: “Since money is not a purpose or a value itself, but a means which permits
measurement of very dissimilar actions and property for exchange, such equality
demands that equivalence of reciprocal considerations responds to the real values
and the purpose of each one of them.” Furthermore, the court stated that: “…such
equitable situation is modified when, due to the negligence of a delinquent debtor,
his/her nominal consideration has considerably lost its real value, its purchasing
power, for reasons beyond the creditor’s control.”11
Reassessment or revaluation of monetary obligations was accepted by inferior
courts, and some laws set forth the re-potentiation of certain obligations. For exam-
ple: labor (law No. 20695); loans acknowledged in bankruptcy proceedings (law
No. 21488), rental fees accrued in extended rentals (law No. 21342), attorneys’ fees
(law No. 21839), expropriations (law No. 21499). Furthermore, adjustment clauses,
9
Section 1198 of the Civil Code, arisen from a recommendation of the III National Congress of
Civil Law which took place in Córdoba in 1961 which, under a formula similar to the one of the
1942 Italian civil code, gathered the proposals of the authors who attended such important
meeting.
10
National Supreme Court, 21.5.76, ED 67-410.
11
38 J.C. Rivera
even in loans with real property warranties, were expressly legitimated (law No.
21309).
Case law moved forward and the update of obligations with no delinquent debt-
ors and even with delinquent creditors was acknowledged. The request for the
update was granted in second instance and the amounts set forth by means of a final
court resolution were adjusted, since it was concluded that revalorization did not
imply any modification whatsoever of a matter already judged, but only its re-
expression with adjusted values.
Therefore, revalorization reached all obligations.
2.1.8 1981 Devaluation: The Theory of Unforeseen

Contingencies in Practice
In 1981 another serious crisis took place, as a result of a more sudden and acceler-
ated devaluation process than the one officially foreseen. This situation lead the
authors and case law to reestablish equivalences of considerations by implementing
the theory of unforeseen contingencies as set forth in the Civil Code, section 1198,
as amended in 1968. This measure was aimed at preventing bankruptcy of debtors
who had undertaken obligations in foreign currency (or in domestic currency with a
“foreign currency adjustment clause”), since they were affected by the abandon-
ment of governmental policies regarding exchange rate. In sum, such sudden aban-
donment of an exchange policy which had been guaranteed by the State was
considered an extraordinary and unforeseen contingency.
In this case, the courts acted subtlety, since they did not include in the adjust-
ments those obligations in which foreign currency was the contractual currency
(e.g., if creditor had indeed lent U.S. dollars), if creditor had funded him/herself in
a foreign country (case of bank mutuum in which the bank received a line from
abroad and as such had to – at the same time – return foreign currency), and in the
case of a genuine obligation in foreign currency (i.e., when there was a movement
of goods or services beyond national boundaries).
2.1.9 1989 Hyperinflation
At the time of 1989 hyperinflation, which reached its highest peak in June of the
same year, lawyers and judges were mentally prepared and boasted a large number
of measures suitable for facing it. Therefore, hyperinflation12 did not cause serious
troubles in the field of private law: revalorization of monetary obligations was
accepted, adjustment clauses were stated in practically all contracts, adjustment
12
More than 250 % of inflation in June, 1989.
indexes were known, and lawyers and judges learnt how to implement them; interest
for adjusted obligations were pure and the 6 % rate was generalized as the rate to be
used for credits updated in accordance with inflation indexes. Whenever adjustment
indexes lead to an excess, case law put a limit thereto. The theory of unforeseen
contingencies, as stated in the Civil Code, served as a background to solve the cases
in which the absurd acceleration or growth of inflation turned the contract
meaningless.
What caused surprise, however, was a plan which the Government set out by the
end of 1989 to face a new hyperinflation process. This plan involved the freeze of
bank deposits and its restitution by means of installment of public securities.
Constitutionality of such plan was ratified by the Court in the cases “Peralta” and
“Videla Cuello”.
In Videla Cuello13 the Court remarked that its case law “has admitted, in emer-
gency situations, constitutionality of those laws temporally suspending the effects of
contracts freely adjusted by the parties, as the effects of final resolutions, whenever
the substance is not modified from one to another, for the purpose of protecting
public interest in cases of serious disturbances” (Recital No. 7, emphasis added).
For example, the Court recalled that, in accordance with its case law, “it is lawful
that the law fixes the term and the price of urban rents, reduction of interest rates
agreed by the parties, mortgage moratoriums, maximum prices, suspension of evic-
tions and expulsions, imposition of mandatory unionization of vintners […], tempo-
rary paralyzation of provisional wages adjustment lawsuits, reduction of agreed
retirement pension amounts […]” (Recital No. 7).
2.1.10 2001 Crisis
2.1.10.1 Backgrounds: Convertibility Law
In 1991 a new law for convertibility of Argentine currency was passed, in this case
not regarding gold, but regarding the U.S. dollar. The same law prohibited any
mechanism for updating obligations.14
This implied the return to a strict nominalism. However, at the same time, the
Civil Code was amended in connection with obligations incurred in foreign cur-
rency: the Code in its original version stated that obligations incurred in foreign
currency would be treated as obligations of giving a certain amount of property
(section 617), and case law had adopted the theory by which such obligations could
be always settled in domestic currency pursuant to the exchange rate in force at the
13
National Supreme Court, 27.12.90, LL 191-D-518.
14
Law 23928. Sobre ella v. Alegría – Rivera, Convertibility Law, Buenos Aires, Abeledo Perrot,
1991.
40 J.C. Rivera
time of settlement.15 The same convertibility law amended section 617 of the Civil
Code which stated that obligations not contracted in legal tender within the country
are to be treated as obligations of giving amounts of money and they should be
settled in the stated currency (Civil Code, section 619, also amended by convert-
ibility law).
2.1.10.2 Emergency Law Dated January 6, 2002
This system lasted until the end of 2001; in such moment, the freeze of bank depos-
its was ordered (and other subsequent measures which made the position of deposi-
tors worse) and burst in January, 2002, when the new administration got the
Congress to pass law No. 25561 abandoning convertibility. From that moment on, a
series of measures were adopted which converted obligations undertaken in foreign
currency into Argentine pesos.
Conversion into pesos meant that debtors who had committed to pay in foreign
currency were authorized to settle the obligation by making payments in pesos at a
statutory fixed exchange rate which rapidly became too far from the real exchange
rate.
The legal system set forth the general rules; however, it also foresaw the possibil-
ity of adjustments to be made by the courts taking into consideration the special
circumstances of each case.
Thus, law No. 25561, section 11, set forth direct negotiations between debtors
and creditors, and authorized the Executive Branch to enact provisions clarifying
and regulating specific situations based on the provision established by section 1198
of the Civil Code – which stated the theory of unforeseen contingencies – and the
principle of shared efforts.
Furthermore, a subsequent executive order stated that if, as a consequence of
implementation thereof the value of the property, product or service was superior or
inferior to the one at the time of payment, any of the parties could request an equi-
table readjustment of the price (E.O. 214/2002, section 8).
It is important to remark that the Argentine Supreme Court of Justice ratified
the conversion of obligations into Argentine pesos.16
15
National Commercial Court of Second Instance, plenary session, 20.10.1967, ‘in re’: “Argentrac
Cía. Argentina de Tractores y Maquinaria, S. A. v. Empresa Constructora Vidal, Martí y Cía., S. R.
L.”, LL 128-751.
16
National Supreme Court, “Massa, Juan Agustín c. Poder Ejecutivo Nacional”, December 27,
2006, Court Orders 329:5913.
2.1.11 Partial Conclusions
The Civil and Commercial Code keeps the pacta sunt servanda as a general prin-
ciple. However, the aforementioned principle was moderated both by legislation
and case law, supported by authors’ opinion, as from subsequent crises of the twen-
tieth century. They were adopted in the following fields:
– Contribution agreed, since it was accepted that debtors could settle their obliga-
tions by paying in a currency different from the one agreed (legal tender instead
of sealed gold); the same happened in 2002 with the legal provision contemplat-
ing the possibility of paying in pesos obligations incurred in foreign currency;
– Nominal amount of the monetary obligation, by accepting revalorization thereof
pursuant to inflation indexes;
– Terms and other contractual provisions, since laws stating minimum terms for
renting housings, freezing prices of fixed term rents, stating mortgage moratori-
ums, etc. were enacted; which were always ratified by the Supreme Court case
law.
– Efficacy of contracts, since it was generally accepted that, in case of exceptional
and unforeseen circumstances which would turn consideration excessively oner-
ous for one of the parties, such party would be entitled to claim for termination
of the contract (section 1198 of the Civil Code, as amended in 1968).
2.2 2012 Civil and Commercial Code
A Civil and Commercial Code project was launched in 2012 and it is currently in
force, since the 1st of August, 2015.
Section 1091 of the new Civil and Commercial Code states: “Unforeseen contin-
gency. If in the case of commutative contracts of permanent or deferred execution,
consideration in charge of one of the parties becomes excessively onerous due to an
extraordinary modification of the circumstances existing at the time of execution
thereof, caused by reasons beyond the parties’ control and the risk assumed by the
affected party, such party is entitled to bring a court or out-of-court action, for action
or as an exception, claiming total or partial termination of the contract, or an adjust-
ment thereof. The same concept is applicable to the third party to whom rights have
been conferred, or obligations have been allocated, resulting from the contract; and
to aleatory contracts, if consideration becomes excessively onerous for reasons
beyond the risk inherent thereto”. The main difference with the old Civil Code is
this: the new Civil and Commercial Code recognizes—in favor of the damaged
party—not only the possibility to claim damages, but also the possibility to have the
contract revised.
Also, it is remarkable that the new Civil and Commercial Code treats the hypoth-
esis of frustration of the purpose of the contract in particular, in section 1090:
“Frustration of the purpose. Final frustration of the purpose of the contract autho-
42 J.C. Rivera
rizes the detrimented party to declare its termination, if caused by an extraordinary

modification of the circumstances existing at the time of execution thereof, beyond
the party’s control, and which exceeds the risk assumed by the affected party.
Termination is operative whenever this party communicates the termination state-
ment to the other party. In case frustration of the purpose is temporary, the parties’
would be entitled to termination only if timely compliance of an obligation which
time of execution is essential is not possible.”
The explicit regulation of the frustration of the purpose of the contract relates to
the fact that the new Civil and Commercial Code expressly recognizes the purpose
of the contract as an element of contracts. It defines it in section 281 which states:
“The cause is the immediate purpose authorized by the law which has been deter-
mining of the will. The cause is also formed by the exteriorized motives when these
are legal and have been explicitly added or even tacitly if they are essential to the
parties” and is completed with the regulation in section 1013 which reads
“Requirement. The cause shall exist in the formation of the contract and during its
execution, and subsist during its performance. The lack of cause opens the possibil-
ity, depending on the case, of nullity, adjustment or extinction of the contract.”
2.3 Theoretical Grounds for Legal and Court Interventions
2.3.1 Theory of Unforeseen Contingencies
The fact that since 1968 the possibility of requesting termination of contracts affected
by the exceptional and unforeseen contingency is expressly stated (Civil Code, sec-
tion 1198) makes the discussion on grounds thereof reduced to the scholars’ opinion,
since the courts simply put into practice legislation in force. Nevertheless, there have
been important contributions which allow us to accurately distinguish the cases of
cancellation (or revision) from change of the circumstances of such cancellation as
a result of frustration of purpose o disappearance of the contract basis.
The alternatives in this debate are still applicable even after the recodification, as
in the New Civil and Commercial Code the substantive solutions from the previous
Code have been maintained with the modifications described above.
2.3.1.1 Grounds for the Theory of Unforeseen Contingencies as Enacted
Part of the Argentine scholars’ opinion has considered that the provision set forth in
section 1198 of the Civil code is based on the general principle of good faith, which
seems to be inferred from the text itself, since the same establishes good faith as the
general principle governing execution, interpretation and enforcement of contracts.
Other authors have considered it is a mere implementation of the rebus sic stan-
tibus clause, but also have been influenced by the doctrine of the basis of contracts
developed by the German jurist Karl Larenz,17 and many authors, and some court
precedents found in it the grounds for inefficacy or revision of contracts caused by
the subsequent excessive onerosity.18
We will revert to this idea when treating the frustration of purpose as an assump-
tion of subsequent contractual inefficacy.
2.3.2 Other Methods of Contracts Adjustment
While the now derogated Civil Code was in force, methods for adjusting contracts
when their commutativeness is affected were not limited to the ones set forth in sec-
tion 1198 of the old Civil Code.
In Argentina, as in many other countries which codes only state express provi-
sion in such respect, the scholars’ opinion and case law have opened the doors to
revision/termination, through other legal concepts, such as the basis of business,
frustration of contracts, etc. That is, regardless of its legal regulation, these doc-
trines have been created as praetorian creations of courts and as scholars’
proposals.19
Nevertheless, the captioned concepts are not to be confused, since each one of
them is to be implemented in a different field.
2.3.2.1 Frustration of Purpose
Frustration of purpose is referred to those cases in which there has been a caused
purpose, common to the parties, which for subsequent reasons – not personal or
attributable to the parties, external to their field of influence and which does not
constitute an assumed risk – cannot be reached. Termination of the contract is the
effect thereof.
17
Larenz (1956).
18
Case law also accepted it; thus, it is said that “the pacta sunt servanda principle can only be
breached when the basis of the legal act has changed, and a serious and essential damage is
caused”: National Court of Second Instance., civil and commercial chamber, 24.2.70, LL
140-452.
19
Those criteria have been reflected in the Commission No. 3 of the XIX National Congress of
Civil Law in Rosario, in 2003, entitled “Renegotiation and revision of contracts” [Renegociación
y revisión del contrato] which reads: “Revision of contracts due to excessive onerousity in term
contracts –section 1198, 2° part of the civil code- does not exhaust the events in front of the nego-
tiations unbalance in term contracts. The theory of unforeseen events, frustration of the contract
purpose, the general principle of good faith, the abuse of law and equity are useful means of con-
tract revision”: Iñiguez, Marcelo, Advances of authors’ opinion in the field of subsequent unbal-
ance. The extraordinary in question, in the Communitarian and Private Law Magazine [RDPyC]
2007-1-141 et seq.
44 J.C. Rivera
The field in which frustration of purpose is more frequently implemented is in

the contract for rental of property, and thus it is reflected in the Argentine Civil
Code, sections 1522 and 1531.20
Argentine case law has put into practice the frustration of purpose doctrine in
some cases; in one of them it was stated that the purpose of a contract of rental of a
land intended for a livestock activity was frustrated if the land had not had the nec-
essary water supply for reasons of insufficiency of provision from a canal. As we
have mentioned before, the frustration of the purpose is expressly regulate in the
Civil and Commercial code (section 1090), following the criteria established by
scholars and case law during the life of the previous Code.21
2.3.3 Difference in Relation to Unforeseen Contingencies
Authors have explained the difference between the unforeseen contingencies, as set
forth in legislation, and the so called frustration of purpose:
– The “unforeseen contingencies” principle (or teoría de la imprevisión – théorie
de l’imprevision) is implemented when the relation of equivalence has been bro-
ken, the contract has lost its commutative quality due to contingencies having an
impact, so the contract becomes excessively onerous for one of the parties;
– The “frustration of purpose” principle is implemented when the purpose in com-
mon of the parties cannot be reached, “in common” due to the fact that, since it
has been revealed by one of the parties and accepted by the other, it has become
a part of the contract, as a subjective final cause, as expressly established in the
aforementioned section 281.22
20
Section 1522: If due to an act of God or force majeure the lessee is forced not to use the thing, or
if it cannot be used for the purpose of the contract, he/she can claim for termination of the contract,
or cessation of payment of the price, during the term he/she cannot use the property.
Section 1531: If lessor is the non-prevailing party in a lawsuit regarding a part of the rented
property, lessee can claim for a reduction of the price, or for termination of the contract if the part
he/she is deprived of was the main part of the property, or of the object rented, and for subsequent
damages.
21
National Civil Court of Second Instance, chamber F, 25.4.96, ED 169-345. The court decision is
relevant since the Court clearly defined the concept; thus, it stated that the purpose of the contract
is the basic purpose of one of the parties, known and accepted by the other, in such a way that it is
objectified and becomes the purpose of both parties; and frustration thereof is observed when
compensation is possible, but the purpose cannot be fulfilled due to circumstances beyond the par-
ties’ control.
22
Rivera 1998, p. 60.
2.3.4 Common Ground: The Contract Bases Doctrine
We have already stated that the contract bases doctrine developed by Larenz is seen
as the basis of the provision set forth in section 1198 of the old Argentine Civil
Code and section 1091 of the current Civil and Commercial Code. However, this
idea must be completed stating that such bases doctrine is also the theoretical sup-
port of the subsequent inefficacy caused by frustration of the purpose of the
contract.
Thus, it can be stated that both concepts are inspired, in last instance, by the idea
that the contract creates a rebus sic stantibus obligation. It is then supposed that the
contract is surrounded by certain circumstances in its origin, which modification of
disappearance during enforcement thereof may cause its termination or revision.
These circumstances and the general state of things are the ones that exist at the time
of execution of the contract; they constitute the objective basis of the contract and
its existence or subsistence is objectively necessary for the contract to subsist, pur-
suant to the meaning of the intention of both parties, as regulation provided with
sense.
The objective bases basically involve two assumptions: (1) the break of a relation
of equivalence within the contract for subsequent circumstances (excessive oneros-
ity), and (2) frustration of purpose of the contract.
In short, the well known theory developed by the German professor followed by
Argentine authors, the unforeseen contingencies and frustration of purpose have a
common ground: disappearance of the objective basis of the contract.23
In judicial practice, the bases theory has been implemented to solve some of
problems arisen as a consequence of 2001 crisis. In such sense, it has been stated
that “whenever the bases of a legal act are destroyed by external reasons, such as
devaluation of currency, the intention of the creditor that the debtor strictly fulfills
the obligations under the contract is not a viable principle, since it would imply a
distortion of its essence, especially considering that, at the time the obligation was
undertaken, the debtor had the apparent security granted by convertibility and intan-
gibility of deposits in foreign currency laws”.24
23
In Argentina the doctrine has also linked the idea of contract basis with the cause; disappearance
of the basis of the act would affect the cause of the act: Zannoni1998, p. 560.
24
National Civil Court of Second Instance, Chamber K, 27.8.03, Jud. Doc. 2004-1-721.
46 J.C. Rivera
2.4 Implementation of the Theory of Unforeseen

Contingencies
2.4.1 Objective Estimates of Implementation of the Theory

of Unforeseen Contingencies
Section 1091 of the Civil and Commercial Code requires that consideration of one
of the parties becomes excessively onerous due to extraordinary and unforeseen
reasons.
2.4.1.1 Extraordinary and Unforeseen Contingencies
The criterion to distinguish abnormal – extraordinary – events related to two

elements25:
– The origin of the event (it must be external to the conduct of the parties; e.g., war,
inflation, change of currency);
– Unforeseeable nature of the event, i.e., it must be an event which could not have
been foreseen by the parties even when they acted conscientiously
– Therefore, it is a risk not undertaken by the parties. Section 1091 expressly states
that the event shall be strange to the parties and to the undertaken risk which it
affects.
The unforeseeable nature of the event is, therefore, decided on the basis of a
series of information available at the time of execution of the contract, and in accor-
dance with the possibility of prevision that the parties indeed had.
Hence, both scholars and case law conclude that the contingency causing the
excessively onerosity must meet the same characteristics that the acts of God: it
must be unforeseeable, irresistible, external to the party alleging it, real and
subsequent.
At the same time, however, it is different from the act of God since the contin-
gency does not have an insuperable effect, it does not cause an absolute impossibil-
ity to settle the obligation, since in such case the obligation is extinguished, and this
extinguishment is the proper effect of the act of God. On the other hand, in the case
of unforeseen contingency, the effect of such event external to the parties irresist-
ible, unforeseen, subsequent, and real, is that consideration of one of the parties
becomes excessively onerous; i.e., the affected party may be able to settle the obli-
gation, but by making an unreasonable sacrifice. The concept will be analyzed
below.
It should be noted that foreseeability has also been examined by the tribunals
with a lot of prudence as in abstract anything could be foreseen; what is evaluated is
whether the event which distorts the economic balance of the contract was
25
Lorenzetti (2004), p. 521.
unforeseen or not, which is not the same as whether it was unforeseeable. As such,
in the case of a rental of a venue for a wedding where the fiancée dies before the
event, it could be stated that there is nothing more foreseeable than death itself, but
that it was unforeseen that it would happen to a young woman. Therefore unforesee-
able is not unimaginable or impossible to contemplate with anticipation, as many
force majeure events are imaginable, and therefor plausible of being mentally rep-
resented or previously observed. Thus what is really unforeseeable shall be stated
on a case to case basis, without generalizations,26 and its notion is closer to what is
unforeseen in the concrete case rather than to what is unforeseeable in “abstract”.27
2.4.1.2 Excessive Onerosity
Argentine legislation requires the extraordinary and unforeseen event to derive in an

excessive onerosity of consideration due, so maintenance of the obligation implies
commitment of a flagrant injustice,28 evidenced in the excess resulting from compar-
ing consideration due by the detrimented party with the other party’s
consideration.
It is an economic relation in which something is given in exchange for another
similar thing according to the market value: there is excessive onerosity when these
values have been distorted.
Such relation is objective; since it is a “relation” indeed, and it does not make reference to
the expected consideration, but to its equivalent in relation to the other party’s consider-
ation. In such sense, it has been stated that “It should be taken into account not only the
asset situation of the damaged party, since it is attempted to examine correlativity of con-
siderations derived from the contract and not a asset relation which has not been taken into
consideration in the particular conventional program. In short, what counts is not consider-
ation itself, but consideration in its equivalent relation to the other party’s consideration,
which disadjustment causes an essential modification of the economic basis of the
contract”.29
Therefore, damage derived from the extraordinary and unforeseen event does not
require a loss consisting on the bankruptcy of the damaged party or his/her impov-
erishment with regard to all his/her assets, but only a serious damage in the legal act
executed with the other party would be enough.30
26
As cited in the award in re “Empresa de Energía de Boyacá c/Compañía Eléctrica de Sochagota”,
21.4.04, Casación Civil, Colombia, 23.6.00.
27
An Argentine judicial court said the unforseen contingencies principle considers as extraordinary
those events which do not usually occur, without giving unforseeability an absolut sense, as
according to experience any event, even if unexpected, could be known and eventually thought of:
CNCom., Chamber C, 22.8.77, LL 1978-B, 314.
28
Alterini (1998), p. 407.
29
30
National Civil Court of Second Instance, chamber C, 19.10.78, LL 1978-D-684.
48 J.C. Rivera
2.4.1.3 Who May Invoke Excessive Onerosity
Section 1091 of the Civil and Commercial Code states that the actions set forth
therein are applicable to all individuals who, being parties to a contract, allege that
their pertaining considerations have become excessively onerous. Therefore, it does
not exclude the legal standing of the damaged party which is a company or profes-
sional in the field of the business related to the contract. This, since any contract,
even those executed between companies, may be affected by a modification of the
circumstances that the parties had taken into consideration at the time of execution.
Moreover, contract executed between companies are mostly affected by disappear-
ance of the bases, since they are term contracts, monetarily significant, and they are
subject to modifications of different markets.31
2.4.1.4 Contracts Affected
Section 1091 of the Civil and Commercial Code states that termination or revision
of the contract due to excessive onerosity may be useful for commutative contracts
of continuous or deferred performance. In the case of aleatory contracts, excessive
onerousity may be invoked whenever the extraordinary contingency is external to
the proper risk of the contract.
2.4.1.5 Resolution Action: Legal Standing for Claiming Revision
Section 1091 of the Civil and Commercial Code assigns the affected party the right
to claim before a judge or extrajudicially, by action or exception, the total or partial
resolution of the contract or its adjustment. This shall be related to the provision in
section 1011, which regulates long term contracts. It established that when one of
the parties decides to terminate the contract “it shall give the other the reasonable
opportunity to renegotiate in good faith, without incurring in an abusive exercise of
its rights.”
So then, the idea that in long term contracts there is an obligation to renegotiate
its provisions when the economic equation of the deal has been altered by events
strange to the risk undertaken by the affected party, is considered as included in
Argentine law. Such obligation is based in the principle of good faith.
31
Lorenzetti states that even in the case of contracts between pairs, the external event may break
the economic equation; the difference would lie in the fact that if there are other extra-patrimonial
elements or a practical end which can only be fulfilled by passing of the time, it could be more
equitable for the parties to disassociate before being forced to fulfilled their obligations since, even
when the preservation principle is still applicable, the court may decide upon due valuation of the
case giving it less intensity.” Lorenzetti (2004), p. 516.
2.4.1.6 Adjustment of Contracts
In Argentine law, the matter of which is the scope of adjustment of contracts, in

cases in which it is applicable, has given rise to a vast literature and endless court
resolutions.
In sum, we can affirm that most authors and case law coincide in considering that
revision does not mean mechanical readjustment of agreed obligations, or moving
the effect of the extraordinary and unforeseen events to the other party.
The contract is trying to be expurgated form flagrant injustice32 by examining its
terms and conditions, so that execution thereof by creditors is not abusive, but not
absolutely equalizing considerations33 or distributing subsequent onerosity over
mathematical models or pursuant to fixed indexes or tables,34 but it must be done
sensibly35; therefore, the court – as director of the process of revision – must obtain
reasonable re-composition by means of a discretional assessment, to act in connec-
tion with the contract as a whole, and in the sense that one of the obligations should
stop being intolerable.36 In the same line, it has been stated that “once the equitable
solutions is claimed by any of the parties, the court must decide the equitable distri-
bution of the subsequent risk, taking into consideration the original equation or
balance”.37 Furthermore, case law has considered that, in the case of the theory of
unforeseen contingencies, readjustment cannot and must not be mathematical, since
it is not an attempt to strictly go back to the initial balance, which would imply
conversion of the favoured party into the party damaged by the unforeseen contin-
gency, but an equitable amendment of obligations is sought,38 therefore, it should be
done sensibly.39
In other words, adjustment made by the court of the contract price shall not have
the intention of amending all the damage suffered by the party as a result of the
extraordinary and unforeseen contingency, but it shall try to expurgate the contract
from the flagrant injustice by reviewing its terms and conditions, so that application
by creditors is not abusive, but not trying to absolutely equalize considerations.40
It is therefore concluded that it is not necessary to obtain initial balance, but to
neutralize the effects caused by the extraordinary and unforeseen contingency.
32
Llambías (1978) t. I, No. 225, p. 276 et seq.
33
34
National Civil Court of Second Instance, chamber E, 5.8.81, LL 1982-A-514; id., chamber D,
2.6.81, ED 95-418; id., chamber F, 30.9.81, ED 97-384.
35
National Commercial Court of Second Instance., chamber B, 2.12.76, ED 72-639; National Civil
Court of Second Instance, chamber G, 23.2.81, ED 93-383.
36
Conf. Mosset (1977), p. 229.
37
San Rafael Congress of civil law, recommendation cited by Mosset (1977).
38
SCJ Mendoza, July 10, 1984, Lexis Nexis Jurisprudencia y Doctrina, Document No.: 16.7363.
39
National Civil Court of Second Instance, chamber B, December 09, 1983, JA 1984-III-136.
40
Alterini (1998) No.16 f) on p. 454; decision of Cavagna Martínez and Barra in Supreme Court,
June 10, 1992, “Lafontaine, Oscar Rodolfo v. Lafontaine de Minteguiaga, Elsa Esther y otro”,
Court decisions 315:1247.
50 J.C. Rivera
2.4.1.7 Rights of the Defendant
The Civil and Commercial Code does not set forth rights to any compensation what-
soever in favor of the defendant for termination of the contract affected by the sub-
sequent excessive onerosity. The only means of the defendant to avoid termination
of the contract is to offer an equitable readjustment to be made in accordance with
the patterns set forth in 18.6 above.
References
Alterini, A.A. 1998. Civil – commercial- contracts for consumption. General Theory [Contratos
civiles – comerciales – de consumo. Teoría General]. Buenos Aires: Abeledo Perrot.
Larenz, K. 1956. Basis of the legal act and observance of contracts [Base del negocio jurídico y
cumplimiento de los contratos]. Trans. Carlos Fernández Rodríguez. Madrid: Revista de
Derecho Privado.
Llambías, J.J. 1978. Treaty – Obligations [Tratado – Obligaciones], 3rd ed. Buenos Aires: Perrot.
Lorenzetti, R. 2004. Contract treaty. General part [Tratado de los contraltos. Parte General].
Buenos Aires: Rubinzal-Culzoni.
Morello, A.M. 1989. Long term contracts and the need for a permanent renegotiation [Los contra-
tos de larga duración y la necesidad de una renegociación permanente]. Buenos Aires: La Ley
1989-C-1227.
Mosset, I. 1977. Contractual justice [Justicia Contractual]. Buenos Aires: Ediar.
Nicolau, N. 2002. Revision and renegotiation of contracts as instruments useful for adjustment
thereof to the subsequent circumstances, JA 2002-IV-1058.
Rezzónico, L.M. 1954. Binding force of contracts and the theory of unforeseen events [La fuerza
obligatoria del contrato y la teoría de la imprevisión]. Buenos Aires: Perrot.
Rivera, J.C. 1998. Relation between frustration of the purpose and unforeseen contingencies [La
relación entre la frustración del fin y la imprevisión], ED 179-60.
Robledo, N.D. 2002. La salida de las cajas de conversión: algunos problemas jurídicos, JA 2002-
IV, 541.
Spota, A.G. 1953. Contractual theory of unforeseen contingencies and abuse of law [La teoría de
la imprevisión contractual y el abuso del derecho], JA 1953-30.
Tobías, J.W., and F. De Lorenzo. 2003. Notes upon the autonomous actions of readjustment in
accordance with section 1198 of the Civil Code [Apuntes sobre la acción autónoma de reajuste
en los términos del art. 1198 del Código Civil], LL 2003-B-1185.
Zannoni, E. 1998. in Belluscio – Zannoni, Commented Civil Code, volume 2, comment to section
502, No. 9.
Zannoni, E.A. 2007. Contractual unbalance and renegotiation of contracts [El desequilibrio con-
tractual y la renegociación del contrato], RDPyC 2007-1.
List of Cases
National Civil Court of Second Instance, 30.12.38, LL 13-408.

National Civil Court of Second Instance, chamber B, December 09, 1983, JA 1984-III-136.
National Civil Court of Second Instance, chamber C, 19.10.78, LL 1978-D-684.
National Civil Court of Second Instance, chamber D, 2.6.81, ED 95-418.
National Civil Court of Second Instance, chamber E, 5.8.81, LL 1982-A-514.

National Civil Court of Second Instance, chamber F, 25.4.96, ED 169-345.
National Civil Court of Second Instance, chamber F, 30.9.81, ED 97-384.
National Civil Court of Second Instance, chamber G, 23.2.81, ED 93-383.
National Civil Court of Second Instance, Chamber K, 27.8.03, Jud. Doc.2004-1-721.
National Commercial Court of Second Instance, plenary session, 20 .10.1967, ‘in re’: ‘Argentrac
Cía. Argentina de Tractores y Maquinaria, S. A. v. Empresa Constructora Vidal, Martí y Cía.,
S. R. L.’, LL 128-751.
National Commercial Court of Second Instance., chamber B, 2.12.76, ED 72-639.
National Court of Second Instance, chamber I, 2.10.51, ED 18-97.
National Court of Second Instance., 25.8.65, LL 121-645.
National Court of Second Instance., civil and commercial chamber, 24.2.70, LL 140-452.
National Supreme Court April 21, 1992, LL 1992-C-491, JA 1992-IV-166, Court decisions 315-
1790 and ED 152-133.
National Supreme Court May 21, 2002, LL 2002-F-726 and Jud. Doc. 2002-3-942.
National Supreme Court, “Massa, Juan Agustín c. Poder Ejecutivo Nacional”, December 27, 2006,
Court Orders 329:5913.
National Supreme Court, 27.12.90, LL 191-D-518.
National Supreme Court, 28.4.22, Decisions 136-164.
National Supreme Court, 7.12.34, Decisions 172:21.
National Supreme Court. May 30, 2011, “Slatapolsky, Jorge Alberto c/Banco do Brasil S.A. s/
ordinario”, Court decisions 334:698.
SCJ Mendoza. July 10, 1984, Lexis Nexis Jurisprudencia y Doctrina, Document No.: 16.7363.
Chapter 3
Keeping the Balance: The Effects of Financial
Crises on Contracts Under Brazilian Law
Anderson Schreiber
Abstract As many other legal systems, Brazilian law is not strictly attached to the
“pact sunt servanda” anymore. There has been a significant mitigation of the bind-
ing force of contracts in the last 20 or 30 years. The Brazilian Consumer Code
(1990) and the Brazilian Civil Code (2002) provides for different remedies that
might be used in case of unpredictable events that cause severe change to the con-
tractual balance. This brief article examines such remedies and how Brazilian
Courts have been using them in connection with financial crises, both in national
and international levels.
3.1 Introduction
Although there is no specific provision regarding financial crises on Brazilian

Contract Law, legal provisions regarding hardship and significant changes of cir-
cumstances are being more and more used by Brazilian Courts in order to address
the effects of financial crises on contracts. As detailed below, the Brazilian Civil
Code (2002) and the Brazilian Consumer Protection Code (1990) – as well as some
specific laws regulating contracts between private companies and the Public
Administration – provide for a right to terminate contracts or to obtain their judicial
review, as a result of supervening events that result in a significant change of cir-
cumstances. In that sense, there has been a severe mitigation of the “pact sunt ser-
vanda” in Brazilian written and case law.
A. Schreiber (*)
Faculty of Law, Rio de Janeiro State University, Rio de Janeiro, Brazil
e-mail: schreiber@sdls.com.br

54 A. Schreiber
3.2 Different Theories for the Same Purpose
There are several theories that have been used by Brazilian Courts on cases regard-
ing the effects of financial crises on contracts. First of all, there is force majeure,
which is defined by Brazilian law as an event that results in impossibility of perfor-
mance (Civil Code, article 393). Under Brazilian law, impossibility of performance
not caused by the debtor automatically terminates the contract. Force majeure is
only used by Brazilian Courts in connection to very strong financial crises, which
result in fact in an impossibility of performance.
In most cases related to financial crises, Courts are not dealing with real impos-
sibility to perform, but with mere hardship or difficulty to perform. On such cases,
Brazilian Courts have been using the so-called doctrine of unpredictability (teoria
da imprevisão). According to such doctrine, any unforeseen event that severely dis-
rupts the contractual balance may be raised by the affected party in order to obtain
the termination or the judicial review of the unbalanced contract. This doctrine is,
actually, supported by several legal provisions under Brazilian law: i.e., Civil Code,
article 478; Law 8,666, article 65, II, d and 78, XVII, among others.
The famous “clausula rebus sic stantibus” and the doctrine of the basis of con-
tract (Wegfall der Geschäftsgrundlage or “teoria da base do negócio”) are also
quoted by Brazilian Courts sometimes, especially in cases where the disrupting
event does not need to be necessarily unforeseen. For example, the Brazilian
Consumer Code (Law 8,078/1990) authorizes Brazilian consumers to plead for
judicial review of the contract in case of any change of circumstances, whether the
supervening fact is unforeseen or not (Brazilian Consumer Code, article 6, V). In
such cases, nominal references to clausula rebus sic stantibus and to the theory of
the basis of contract may occur.
3.3 “Teoria da Imprevisão” (Doctrine of Unpredictability)

Under the Brazilian Civil Code
According to the Brazilian Civil Code of 2002, there are four conditions necessary
to apply the doctrine of unpredictability to a certain contract (article 478). First, it
must be an ongoing contractual relationship (the doctrine is not applicable to con-
tracts already performed or extinguished). Second, there must be proof of an unfore-
seen and extraordinary event (the simple financial difficulty of one of the parties is
not deemed enough, as the doctrine is based on events that are unforeseen to every-
one and not simply to one individual party). Third, such event needs to result in an
excessive burden to one of the contractual parties. Finally, according to the Brazilian
Civil Code, the excessive burden of one of the contractual parties needs to corre-
spond to an extraordinary advantage for the other. Brazilian courts have not been
very strict in regard to this fourth condition (extraordinary advantage), frequently
presuming its existence upon the proof of the excessive burden.
3 Keeping the Balance: The Effects of Financial Crises on Contracts Under… 55
3.4 Mere Variations of Currency and Inflation
According to the Brazilian Superior Court of Justice, mere variations on the value
of US dollar or other foreign currencies, or any other index used to determine the
amount due on certain contracts are not considered an unforeseen event, unless they
are very intense and severe. Due to Brazilian’s past experience with inflation and
present economic policy, courts have been reluctant to consider simple variations of
dollar as basis for judicial claims. However, it is important to keep in mind that, as
already noted above, the unpredictability is not a condition required by the Brazilian
Consumer Code (Law 8,078/1990, article 6, V). In other words, in consumer rela-
tionships (relationships between consumers and providers), consumers may obtain
the contract judicial review based simply on its supervening unbalance.
3.5 Assuming the Risk of Financial Crises
Another common issue regards the willing assumption of risks under certain con-
tracts. There is no legal provision excluding the right to judicial review or contrac-
tual termination in cases where the party has expressly assumed the risk of a
financial crises or any other unpredictable economic event. However, Brazilian legal
writers sustain that such remedies are not granted in cases where claimants have
been negatively affected by changes concerning their “álea normal” (normal alea),
or, in other words, by changes normally included on the risks assumed by the con-
tracting party. For example, materials prices may raise during a construction agree-
ment and that risk, even if it is not predicted by the constructor, it is considered to
be included on the normal alea of his activity, not representing, therefore, an extraor-
dinary (and generally unpredictable) event.
Brazilian courts have also been known to apply this idea of normal alea, espe-
cially in cases regarding the unbalance of contracts by which the State grants to a
private company the right and duty to supply public services (contratos de
concessão).
3.6 What About Remedies? Right to Termination
When all the four conditions mentioned on item III above are present, claimant may
require the contract termination. That is the normal remedy under Brazilian Civil
Code, as provided for on its article 478:
Article 478. In contracts with ongoing or deferred performance, if the obligation of one of
the parties becomes excessively onerous, with extreme advantage for the other, by virtue of
extraordinary or unpredictable events, the debtor may apply for the contract termination.
The effects of the judicial decision that terminates the agreement shall be retroactive to the
date of citation.
56 A. Schreiber
So, according to the Brazilian Civil Code, the affected party could claim for
termination. There is no doubt about that. What Brazilian legal writers debate about
is the possibility of judicial review.
3.7 Is There a Right to Claim for the Judicial Review

of Contracts Under Brazilian Law?
The Brazilian Consumer Code provides for the right to judicial review (article 6) but
that legal provision may only be applied to consumer relationships and may only be
raised by the consumer. In standard contractual relationships, the Civil Code is
applicable and the Civil Code does not clearly state that the affected party may
claim for a judicial review of contract, as a general rule. In fact, it suggests the oppo-
site, providing for judicial review only in connection to unilateral agreements. That
is precisely what the Civil Code states on its article 480:
Article 480. If only one of the parties has obligations under the contract, that party may
claim the reduction of its obligations, or that the manner of performing them be altered, so
as to avoid excessive burden.
Unilateral agreements are not so common under Brazilian law. Most contracts
are bilateral agreements, which means that both parties have mutual obligations. In
such cases, the Brazilian Civil Code does not clearly provide for judicial review, at
least when dealing with the doctrine of unpredictability. It would, however, be very
unfair to force a contractual party to claim for termination when the unbalanced
contract can be reviewed in order to restore its original balance. In fact, there are
many cases where the parties depend or are interested on the survival of the con-
tract. Imagine, for example, a transportation company that does not want to termi-
nate an agreement with its main client, but is suffering the burden of a natural
accident that has closed many roads across the country. In such cases, the contract
may be adjusted to restore the original balance, without the necessity of
termination.
For these reasons, Brazilian legal writers and commentators have been defending
the possibility of judicial review, which is being more and more accepted by
Brazilian Courts everyday. Such possibility is usually based on analogies with the
Brazilian Consumer Code (which, as seen above, expressly provides for judicial
review) or an extensive interpretation of article 317 the Civil Code itself. Article 317
was originally designed for a high-inflation scenario and its main purpose was to
keep the real value of monetary obligations between the date of the contract and the
date of performance. Its wide wording, however, have allowed Brazilian legal doc-
trine to defend the existence of a general right to claim for judicial review.
Article 317. When, for reasons that could not be foreseen, the value of the obligation owed
and its value when it is performed becomes manifestly disproportionate, the judge may cor-
rect it, at the request of the party, in such a way as to ensure, as far as possible, the real value
of the obligation.
3 Keeping the Balance: The Effects of Financial Crises on Contracts Under… 57
Based on article 317 of the Civil Code, Brazilian Courts are accepting more and
more claims of judicial reviews in connection to financial crises. One may say that,
nowadays, Brazilian law accepts both termination and judicial review as general
remedies for contractual unbalance by virtue of unpredictable events. In the present
scenario, there is no priority between such remedies. Claimant may freely choose
between termination and judicial review. If claimant requires termination, Brazilian
law grants the defendant right to avoid termination by proposing to restore the con-
tractual balance. Article 479 of the Civil Code states that: “Article 479. Termination
may be avoided, if the defendant offers to modify the conditions of the contract, on
an equitable basis.” In other words, defendant may always offer himself to modify
the conditions of the contract. However, that is not a duty under Brazilian law.
3.8 Is There a Duty to Renegotiate?
There is no duty to renegotiate under Brazilian law and there is no duty to enter into
mediation either. Both remedies are, though, usually provided for in contractual
clauses. Renegotiation in good faith is frequently mentioned by contracts as a pre-
liminary stage in which each of the parties must engage before they seek a solution
in Courts. Until today, however, it remains a matter for each contract itself.
3.9 Unlawful Termination
If a party terminates the contract without going to the court, indemnification may be
applicable if, after a proceeding started by the counterparty, the court understands
that there was no right to termination at all. On the other hand, if termination or
judicial review are required to the courts – as provided by Brazilian law – and
granted, no indemnification is due to the counterparty, unless it manage to be suc-
cessful in an eventual counterclaim based on the breach of good faith. What
Brazilian courts occasionally do is to split the economic burden resulting from the
unforeseen event, if neither party could reasonably foreseen it or avoid it.
3.10 Conclusion
As many other legal systems, Brazilian law is not strictly attached to the “pact sunt
servanda” anymore. There has been a significant mitigation of the binding force of
contracts in the last 20 or 30 years. The Brazilian Consumer Code (1990) and the
Brazilian Civil Code (2002) have embraced three or four general principles – such
as good faith and “função social do contrato” (social purpose of the contract) – that
are being used by Brazilian Courts and legal writers to build a new Contract Law.
58 A. Schreiber
This new Contract Law seems less concerned with security and stability, in abstract,
and more concerned with fairness and equity. In this scenario, contracts are seen as
endurable relationships, each party being to some extent responsible for the other.
Unpredictable events that cause severe change to the contractual balance may trig-
ger important legal remedies under this new Contract Law, such as the right to ter-
minate the agreement and, more importantly, the right to request the modification of
the contract itself by the Courts (judicial review).
One may say that this is too much: that Brazilian Courts could, in that connec-
tion, interfere in private autonomy, changing contracts at the slightest sign of finan-
cial retraction both on national or international scenarios. This is not true, neither in
theory nor in practice. In theory, Brazilian law provides for a strict set of conditions
that are deemed necessary to claim for judicial review or termination. In practice,
Brazilian Courts have been very judicious about the use of such remedies and the
cases in which they may be used. As detailed above, the mere variations on the
value of currency, or the decrease of financial indexes or interest rates, are not con-
sidered extraordinary or unpredictable events. Brazilian recent economic history,
characterized by a national victory against the so-called “inflation ghost”, might
explain why the Courts have been acting so judiciously on this field. In conclusion,
one may say that Brazil is currently trying to find a certain balance on defining the
legal consequences of unbalance.
Chapter 4
Les effets exercés par les crises financières sur
la force obligatoire des contrats: certitudes et
incertitudes du droit québécois en matière
d’imprévision
Élise Charpentier and Nathalie Vézina
Abstract The Quebec law is marked by the coexistence of certainties and

uncertainties related to the theory of imprevision. The Civil Code of Quebec, as the
former Civil Code of Lower Canada, explicitly recognizes the principles of pacta
sunt servanda and nominalism. However, there is no specific provision in the Civil
Code of Quebec that recognizes or rejects the theory of imprevision. If it is clear that
a change of circumstances could have an impact when the parties have included a
hardship clause or even in one of the particular cases where the legislator explicitly
provides for imprevision, authors express opposing views as to the applicable law in
other hypotheses. For some, the absence of a general provision on the theory of
imprevision means that the legislature did not wish to acknowledge it and that it
only relies on the general principle of pacta sunt servanda. For others, in light of
the new contractual morality that has recently emerged, the binding effect of the
contract must be reconciled with the general principle of good faith, which imposes
a duty of cooperation and allows for renegotiation of the agreement. In the next few
years, Quebec courts will take a stand on this issue.
Le présent rapport se limite à l’état du droit civil québécois. Il ne porte pas sur le droit applicable
dans les autres provinces canadiennes et assujetti aux principes de common law.
É. Charpentier (*)
Université de Montréal, Montréal, Québec, Canada
e-mail: elise.charpentier@umontreal.ca
N. Vézina
Université de Sherbrooke, Sherbrooke, Québec, Canada
e-mail: nathalie.vezina@usherbrooke.ca

60 É. Charpentier and N. Vézina
4.1 Introduction
Problématique de l’imprévision Les crises financières ont parfois des effets

dramatiques pour les contractants. De prime abord, cette affirmation peut surpren-
dre, le contrat étant souvent décrit, sinon défini, comme une œuvre de prévisibilité,
un moyen pour les contractants de se donner une emprise sur l’avenir. Cela dit, les
changements économiques sont parfois imprévisibles. Lorsque de tels phénomènes
se produisent, la question se pose de savoir si les tribunaux peuvent ou non interve-
nir afin de rétablir l’équilibre contractuel bouleversé – en d’autres termes, si le droit
doit privilégier la stabilité et la sécurité des contrats ou encore une certaine concep-
tion de l’équité. C’est toute la problématique de l’imprévision, également connue
comme celle du « changement de circonstances ».
Distinctions entre l’imprévision et d’autres problématiques

juridiques L’imprévision, telle qu’elle est conçue en droit québécois, se distingue
de problématiques voisines avec lesquelles elle présente certaines similarités.
Ainsi, même si elle pose la question du déséquilibre dans les prestations des
parties, comme la lésion, il s’agit de deux notions distinctes. La lésion suppose un
déséquilibre au moment de la formation du contrat, alors que l’imprévision porte
sur le déséquilibre survenu au moment de l’exécution du contrat en raison d’un
changement de circonstances.1
De même, l’imprévision se distingue de la théorie des risques applicable en cas
de force majeure. En matière d’imprévision, l’obligation n’est pas impossible à
exécuter, mais elle devient excessivement onéreuse. La force majeure se caracté-
rise, au contraire, par une impossibilité d’exécution.2
Notion de crise financière Il convient également de définir la notion de « crise

financière » pour les fins du présent rapport.
La « crise » peut évidemment s’entendre au sens très large d’un dérèglement de
l’économie globale. Il s’agit là d’une situation qui ne s’est sans doute pas présentée
au Québec depuis la grande crise de 1929. Si l’économie globale a connu des
variations, avec certaines périodes considérées plus difficiles du point de vue de la
vitalité de l’emploi ou d’indicateurs tels que le taux de chômage ou l’inflation, elle
n’a connu, au cours des dernières décennies, aucun bouleversement fondamental
qui serait comparable à celui observé dans d’autres régions du monde (par ex.
inflation astronomique, incapacité de l’État à faire face à ses obligations, etc.).
Il nous semble utile d’inclure aussi, dans la notion de « crise », le phénomène des
crises sectorielles, soit celles qui se rapportent à un domaine particulier d’activité.
Il pourrait s’agir, par exemple, d’une augmentation ou d’une chute vertigineuse du
prix d’une matière première sur laquelle repose un pan entier de l’industrie. Sans
être très fréquentes, de telles situations se produisent à l’occasion et peuvent, dans
1
Lluelles et Moore (2012) no 803, p 397; Baudouin et al (2013) no 274, p 381.
2
Baudouin et al (2013) no 846, p 1054.
4 Les effets exercés par les crises financières sur la force obligatoire des… 61
le secteur concerné, entraîner des impacts majeurs sur l’équilibre des prestations
contractuelles.
Il va de soi que le présent rapport se limite aux crises financières – globales ou
sectorielles – qui présentent un caractère exceptionnel et imprévisible. Dans le con-
texte normal, l’économie évolue en fonction de cycles. Certains phénomènes
économiques – parmi lesquels un taux d’inflation modéré, une fluctuation des taux
d’intérêts, etc. – sont relativement prévisibles, même si leur portée exacte ne peut
être anticipée avec précision. Il ne saurait être question de s’interroger ici sur
l’impact de ces phénomènes normaux et prévisibles, puisque les parties sont à
même de les anticiper et elles disposent de certains mécanismes pour en gérer les
conséquences.3 En outre, si elles négligent de se prévaloir de ces mécanismes, les
conséquences n’engendreront pas de déséquilibre marqué pour les parties, en
l’absence de variations exceptionnelles par rapport à la normale.
Le présent rapport s’attarde donc au déséquilibre créé entre les parties au contrat
par l’effet des crises financières exceptionnelles et imprévisibles. Sans se limiter
formellement à certains types de relations contractuelles, la problématique présente
une pertinence toute particulière dans le cas de contrats de longue durée.4
Incidence des règles relatives à la faillite et l’insolvabilité et aux arrangements

avec les créanciers en temps de crise Les difficultés économiques d’une partie
contractante – qu’elles soient attribuables à une crise financière ou à d’autres
causes – peuvent parfois empêcher cette partie de respecter ses engagements.
Lorsque les conditions pertinentes sont réunies, certaines règles permettent de
modifier les obligations du débiteur en difficulté, afin de lui permettre d’assainir sa
situation économique à plus long terme.
Tel est le cas, dans le contexte canadien, de la législation fédérale – donc
applicable au Québec et ailleurs au Canada – en vertu de la Loi sur la faillite et
l’insolvabilité5 et la Loi sur les arrangements avec les créanciers des compagnies.6
Ces lois permettent, dans les faits, une forme de réaménagement des rapports
contractuels, en modulant le droit des créanciers d’exiger l’exécution des obligations,
notamment celles qui résultent de contrats conclus avec le débiteur en difficulté.
Elles ne seront toutefois pas abordées en tant que tel dans le présent rapport. Un
premier motif justifiant d’écarter ces textes législatifs de notre analyse repose sur le
caractère très technique des mécanismes mis en place. De façon plus fondamentale,
ces mécanismes n’entrevoient pas le réaménagement du lien contractuel comme
3
Pour un inventaire des principaux mécanismes d’adaptation à la disposition des parties, soit les
clauses de hardship (abordées ci-dessous, partie 4.2.3), les clauses de revalorisation et les clauses
d’indexation, Lluelles et Moore (2012) nos 2236–2240, p 1291–1300.
4
La problématique des contrats perpétuels ne se pose pas en droit québécois. Les tribunaux y sont
réfractaires et le législateur prévoit même des règles qui imposent une durée maximale pour
certains contrats donnés (par ex. art. 1880 C.c.Q. qui limite la durée d’un bail à 100 ans). Cela dit,
les contrats de longue durée constituent une réalité en pratique, puisque certaines ententes peuvent
s’étendre sur plusieurs années, voire sur des décennies.
5
L.R.C. 1985, ch. B-3.
6
L.R.C. 1985, ch. C-36.
une fin en soi; ils constituent plutôt une solution de dernier recours permettant de
baliser les conséquences des difficultés financières du débiteur lorsque d’autres
mécanismes de réaménagement des rapports entre les parties ont échoué ou sont
indisponibles. Enfin, il convient de souligner que ces mécanismes sont mis en branle
sur la base des difficultés éprouvées par une partie – difficultés parfois causées ou
amplifiées par les crises économiques mais qui peuvent aussi résulter d’autres
facteurs – et ils ne se fondent pas sur l’idée d’un déséquilibre des prestations con-
tractuelles. Le présent rapport, au contraire, porte principalement sur les situations
caractérisées par l’idée d’un déséquilibre résultant d’une crise financière.
4.2 Le droit positif: Les certitudes du droit québécois en

matière d’imprévision
Même si la problématique de l’imprévision comporte des zones d’incertitude, sur

lesquelles nous revenons plus loin (ci-dessous, partie 4.3), il est permis de tirer
certains constats par rapport à la situation actuelle.
D’abord, il n’existe aucune règle législative de portée générale qui traite explic-
itement de la problématique de l’imprévision, soit l’impact d’un changement de
circonstances imprévu et qui entraîne un déséquilibre marqué entre les prestations
contractuelles. Le législateur prévoit néanmoins certaines règles qui se rapportent à
des situations spécifiques. Il est également clair que les parties, en l’absence de
règle législative générale sur la question, ont la possibilité de prévoir convention-
nellement les conséquences d’un changement de circonstances au moyen d’une
clause de hardship.
4.2.1 L’absence de règle législative explicite de portée générale
L’état du droit avant la réforme du code civil Dans le droit antérieur à la réforme
du code civil, alors que le Code civil du Bas Canada était en vigueur, les tribunaux
ne permettaient pas de remettre en question la portée d’un contrat sur le fondement
de changements de circonstances économiques rendant l’exécution d’un contrat
exceptionnellement onéreuse pour une partie, sauf lorsque le législateur ou les par-
ties le prévoyaient explicitement en fonction de situations bien délimitées. Pour le
reste, les tribunaux s’en remettaient au principe général d’intangibilité du contrat,
exprimé à l’époque au troisième alinéa de l’article 1022 C.c.B.C. : « [Les contrats]
ne peuvent être résolus que du consentement des parties ou pour les causes que la
loi reconnaît. »
La réforme du code civil a mené à l’adoption en 1991 du Code civil du Québec,

lequel est entré en vigueur en 1994 en remplacement du Code civil du Bas Canada.
Cette réforme, qui a par ailleurs apporté un certain nombre de nouveautés en matière
de bonne foi et d’équité, aurait pu être l’occasion d’une prise de position claire du
législateur sur le sujet de l’imprévision. Tel n’a pas été le cas. Le législateur a plutôt
choisi de ne pas adopter de disposition de portée générale portant explicitement sur
la question et s’est contenté de reprendre le principe de l’intangibilité du contrat à
l’article 1439 C.c.Q. La portée de cette reconduction de la règle connue dans le droit
antérieur sera abordée plus loin (ci-dessous, partie 4.3.1).
La disposition proposée par l’Office de révision du code civil Les travaux qui
ont mené à l’adoption du nouveau code civil ont pourtant permis de s’interroger sur
une possible atténuation du principe d’intangibilité du contrat.
L’Office de révision du code civil (ORCC) soumettait, en 1977, un Projet de
code civil destiné à guider le législateur dans sa réflexion en vue de l’adoption
d’un nouveau code.7 À l’article 75 du livre V de son Projet de code civil, l’ORCC
proposait de reconnaître le principe d’intangibilité du contrat même en cas de
circonstances imprévisibles (al. 1), tout en aménageant une exception en cas de
préjudice excessif pour une partie résultant de circonstances qui ne lui sont pas
imputables (al. 2):
75. La survenance de circonstances 75. If unforeseeable circumstances

imprévisibles qui rendent l’exécution render execution of the contract more
du contrat plus onéreuse ne libère par onerous, the debtor is not freed from
le débiteur de son obligation. his obligation.
Exceptionnellement, le tribunal peut, In exceptional circumstances, and
nonobstant toute convention contraire, notwithstanding any agreement to the
résoudre, résilier ou réviser un contrat contrary, the court may resolve,
dont l’exécution entraînerait un resiliate or revise a contract the
préjudice excessif pour l’une des execution of which would entail
parties, par suite de circonstances excessive damage to one of the
imprévisibles qui ne lui sont pas parties as a result of unforeseeable
imputables. circumstances not imputable to him.
Le rapport de l’ORCC comportait des commentaires exposant le fondement des

règles proposées dans le Projet de code civil. Au sujet de la règle proposée au
deuxième alinéa de l’article 75 – qui constituait une rupture avec le droit existant –
l’ORCC soulignait d’abord que l’emploi de termes tels que « exceptionnellement »,
7
Office de révision du Code civil, Projet de code civil(1978).
« préjudice excessif » et « circonstances imprévisibles » permettait de baliser

l’exercice discrétionnaire qui était ainsi octroyé aux tribunaux. L’ORCC invoquait
également le souci de promouvoir la justice et l’équité en matière contractuelle, en
proposant la reconnaissance de la lésion à l’étape de la formation du contrat et celle
de l’imprévision à l’étape de l’exécution des obligations résultant du contrat. Enfin,
selon l’ORCC, cette règle nouvelle se situait dans le prolongement de règles
particulières élaborées dans le droit antérieur pour reconnaître l’impact de
circonstances économiques exceptionnelles.8
Les projets ultérieurs qui ont mené à l’adoption du Code civil du Québec ne
comportaient aucune disposition comparable à celle proposée par l’ORCC.9
Dans le Code civil du Québec adopté en 1991, le législateur québécois a été plus
explicite sur le sort réservé à la lésion entre majeurs que sur celui de l’imprévision.
S’agissant de la lésion, il a écarté formellement la proposition de l’ORCC. Le
Code civil du Québec précise en toutes lettres que la lésion ne vicie le consente-
ment – outre quelques exceptions spécifiques – que pour les mineurs et les majeurs
protégés (art. 1405 C.c.Q.).
En revanche, aucun article de principe ne porte de façon explicite sur la pro-
blématique de l’imprévision. Le législateur s’est contenté de codifier quelques
cas où elle est formellement reconnue (ci-dessous, partie 4.2.2). En s’abstenant
ainsi de prendre position clairement sur les cas autres que ceux explicitement
prévus en matière d’imprévision, le législateur a créé un contexte où des inter-
prétations contradictoires sont proposées quant à la portée de ce silence (voir ci-
dessous, partie 4.3).
4.2.2 L’admission législative de l’imprévision dans certains cas

particuliers
Seules certaines dispositions législatives de portée limitée traitent des changements

de circonstances pour permettre explicitement de porter atteinte au principe
d’intangibilité du contrat aux fins de rétablir l’équilibre contractuel.
Les principales dispositions portent sur des actes juridiques à titre gratuit, au
chapitre des libéralités, ainsi qu’en matière de fiducies. D’autres dispositions, sans
pour autant admettre l’imprévision, visent néanmoins à adapter le contrat aux
changements liés à la situation personnelle d’un contractant vulnérable, soit en
matière de louage de logements sociaux et de contrat de crédit conclu par un
consommateur.
8
Office de révision du Code civil, civilCommentaires (1978) p 624–625.
9
Il s’agit de l’Avant-projet de loi sur les obligations (soumis pour consultations en 1987) et du
Projet de loi 125 (déposé en 1990 et qui a mené à l’adoption du Code civil du Québec).
Legs ou donations à charge Lorsque l’exécution d’une charge devient beaucoup

plus onéreuse en raison de circonstances imprévisibles, le legs et la donation à
charge peuvent être modifiés ou révoqués par le tribunal qui tient compte de la val-
eur du legs et de l’intention de l’auteur de la libéralité. Le législateur énonce cette
règle aux articles 771 C.c.Q. (en matière de successions) et 1834 C.c.Q. (eu égard
aux donations).
771. Si, en raison de circonstances 771. If, owing to circumstances

imprévisibles lors de l’acceptation unforeseeable at the time of the
du legs, l’exécution d’une charge devient acceptance of the legacy, the execution
impossible ou trop onéreuse pour of a charge becomes impossible or too
l’héritier ou le légataire particulier, le burdensome for the heir or the legatee
tribunal peut, après avoir entendu les by particular title, the court, after
intéressés, la révoquer ou la modifier, hearing the interested persons, may
compte tenu de la valeur du legs, de revoke it or change it, taking account
l’intention du testateur et des of the value of the legacy, the intention
circonstances. of the testator and the circumstances.
1834. La charge qui, en raison de 1834. A charge which, owing to
circonstances imprévisibles lors de circumstances unforeseeable at the
l’acceptation de la donation, devient time of the acceptance of the gift,
impossible ou trop onéreuse pour le becomes impossible or too
donataire, peut être modifiée ou burdensome for the donee may
révoquée par le tribunal, compte tenu be varied or revoked by the court, taking
de la valeur de la donation, de account of the value of the gift, the
l’intention du donateur et des intention of the donor and the
circonstances. circumstances.
Les Commentaires du ministre de la Justice10 n’indiquent pas toujours le

fondement des règles adoptées dans le Code civil du Québec. Au sujet de
l’article 1834 C.c.Q., il est toutefois précisé que l’adoption de cette disposition
a été guidée par l’équité. C’est aussi le cas lorsqu’il s’agit d’un legs. Malgré
l’affirmation du Ministre, on peut penser que ses interventions sont aussi
motivées par le respect de la nature des libéralités. En effet, dans le cas d’une
donation ou d’un legs soumis à une charge devenue trop onéreuse, celle-ci serait
susceptible de nier la nature de la libéralité ayant au départ eu pour fonction
d’enrichir celui qui est gratifié.
Les tribunaux n’ont pas eu beaucoup d’occasions de se pencher sur des affaires
où les articles 771 ou 1234 C.c.Q. étaient susceptibles de s’appliquer. Les décisions
10
Commentaires du ministre de la Justice (1993).
rendues illustrent toutefois bien le type de circonstances pouvant être jugées

imprévisibles. On notera que les faits ayant donné lieu aux litiges ne s’apparentent
pas à des crises financières. Les tribunaux ont révoqué des donations d’immeubles
affectées de charges imposant une destination particulière qui pouvait toujours être
respectée, mais à un coût devenu prohibitif.
On a ainsi révoqué une charge grevant un immeuble obligeant le donataire à y
maintenir à perpétuité la vocation de salle d’assemblée publique.11 La donation
avait été faite en 1923. Or, soixante-dix ans plus tard, l’utilisation de la bâtisse
nécessitait l’installation d’un champ d’épuration ainsi que des réparations pour ren-
dre l’accès des lieux sécuritaire, et l’absence de terrain de stationnement causait
problème. Le tribunal a décidé qu’il devait donner une interprétation libérale à
l’article 1824 C.c.Q. tout en respectant les volontés réalisables du donateur. Il a
précisé que l’expression « circonstances imprévisibles » n’était pas ambiguë et une
qu’interprétation trop restrictive entraînerait une application limitée de la loi qui
vise le dénouement des impasses. Il a aussi souligné que la valeur relative de la
donation constitue plutôt un passif pour la requérante.
Dans une autre affaire,12 il s’agissait de terrains donnés ou légués à des fins de
culte ou paroissiales entre 1929 et 1950. Le tribunal, citant la précédente décision,
a également adopté une interprétation libérale de l’article 1824 C.c.Q. susceptible
de respecter les volontés du donateur. Il conclut que les exigences de cet article
étaient remplies, en raison de l’imprévisibilité du changement de mentalités, ainsi
que l’impossibilité pour le donataire d’assurer un fonctionnement adéquat de
l’édifice et son maintien en bon état, vu les coûts exorbitants d’entretien et de fonc-
tionnement des édifices voués au culte.
Ces deux décisions montrent bien que le donataire pouvait toujours respecter la
charge, mais qu’il était impossible de justifier, d’un point de vue économique, une
dépense aussi onéreuse.
Fiducies La même idée sous-jacente exprimée eu égard aux legs ou donations avec
charge se retrouve dans les décisions en matière de fiducies.
Si les circonstances rendent trop onéreuse la poursuite du but d’une fiducie, le
tribunal peut y mettre fin ou, dans le cas d’une fiducie d’utilité sociale, lui substituer
un but qui se rapproche le plus possible du but original. C’est ce que le législateur
prévoit à l’article 1294 C.c.Q. qui se lit comme suit :
11
Hatley (Municipalité de) c. Court Good Cheer, [1997] R.D.I. 364 (C.S.).
12
Fabrique de la paroisse de Notre-Dame de la Paix c. Ross (Succession de), 2011 QCCS 2283.
1294. Lorsqu’une fiducie a cessé de 1294. Where a trust has ceased to meet
répondre à la volonté première du the first intent of the settlor, particularly
constituant, notamment par suite de as a result of circumstances unknown to
circonstances inconnues de lui ou him or unforeseeable and which make
imprévisibles qui rendent impossible the pursuit of the purpose of the trust
ou trop onéreuse la poursuite du but de impossible or too onerous, the court
la fiducie, le tribunal peut, à la may, on the application of an interested
demande d’un intéressé, mettre fin à la person, terminate the trust; the court
fiducie; il peut aussi, dans le cas d’une may also, in the case of a social trust,
fiducie d’utilité sociale, lui substituer substitute another closely related
un but qui se rapproche le plus purpose for the original purpose
possible du but original. of the trust.
Si la fiducie répond toujours à la Where the trust continues to meet the
volonté du constituant, mais que de intent of the settlor but new measures
nouvelles mesures permettraient de would allow a more faithful compliance
mieux respecter sa volonté ou with his intent or favour the fulfilment
favoriseraient l’accomplissement de la of the trust, the court may amend the
fiducie, le tribunal peut modifier provisions of the constituting act.
les dispositions de l’acte constitutif.
Le pouvoir du tribunal ne se limite pas aux situations où les circonstances étaient

imprévisibles. Il s’étend aussi aux circonstances au départ inconnues – mais peut-
être prévisibles – du constituant au moment de la constitution de la fiducie. Bien que
l’équité puisse fonder une telle règle, on peut supposer que l’intervention du
législateur est ici plutôt dictée par le respect de la nature même de la fiducie.
Une affaire l’illustre bien. La fiducie prévoyait que les revenus devaient profiter
à une personne sa vie durant, puis que les biens ait été remis à ses enfants. Le tribu-
nal a conclu que le maintien de la fiducie, n’était pas justifié puis que, d’une part, la
bénéficiaire était financièrement indépendante, et d’autre part, que les revenus de la
fiducie servaient presqu’entièrement à acquitter les frais de gestion de celle-ci et les
charges fiscales.13 Or, les frais de gestion et les charges fiscales n’avaient pas subi
de fluctuations importantes depuis la création de la fiducie : ils étaient tout à fait
prévisibles, mais peut-être pas justifiables.
Devant des faits similaires, un autre tribunal a plutôt choisi de modifier les
dispositions de l’acte constitutif, comme le permet le second alinéa de l’article 1294
C.c.Q., puisque la fiducie répondait toujours à la volonté du constituant.14 L’acte
constitutif nommait une institution financière à titre de fiduciaire. Or, cette institu-
13
Stevenson c. National Trust Co., J.E. 95–780 (C.S.).
14
Marmet (Succession de), J.E. 99–625 (C.S.).
tion exigeait des frais de gestion élevés. Estimant que la constituante n’a pas prévu
le fait qu’un jour une partie importante de son patrimoine profiterait au fiduciaire, le
tribunal a ordonné le remplacement de la fiduciaire par une autre institution qui
proposait ses services à moindre coût.
Louage de logement à loyer modique et contrat de crédit conclu par un con-
sommateur Le droit québécois compte en outre des mesures de protection très
particulières qui remettent en question l’intangibilité du contrat de manière plus
importante, puisqu’elles s’appliquent peu importe le caractère prévisible ou non du
changement dans la situation économique du contractant. Il s’agit de règles fondées
sur l’équité. Les deux situations visées protègent les locataires de logements à loyer
modique et les consommateurs.
Les habitations à loyer modique sont des logements sociaux destinés à des
populations à faible revenu. Selon l’article 1994 C.c.Q., le locataire qui a conclu un
bail pour ce type de logement a le droit d’obtenir une réduction de loyer s’il subit
une diminution de revenu ou un changement dans la composition de son ménage. Si
le locateur ne lui accorde pas la réduction de loyer, il peut s’adresser au tribunal
pour l’obtenir. Dans ce cas, la prise en compte des circonstances joue dans les deux
sens : si le revenu du locataire redevient égal ou supérieur à ce qu’il était, le loyer
antérieur est rétabli.
1994. Le locateur est tenu, au cours du 1994. The lessor, at the request of a
bail et à la demande d’un locataire qui lessee who has suffered a reduction of
a subi une diminution de revenu ou un income or a change in the composition
changement dans la composition de of his household, is bound to reduce
son ménage, de réduire le loyer his rent during the term of the lease in
conformément aux règlements de la accordance with the by-laws of the
Société d’habitation du Québec; s’il Société d’habitation du Québec; if he
refuse ou néglige de le faire, le refuses or neglects to do so, the lessee
locataire peut s’adresser au tribunal may apply to the court for the
pour obtenir la réduction. reduction.
Toutefois, si le revenu du locataire If the income of the lessee returns to
redevient égal ou supérieur à ce qu’il or becomes greater than what it was,
était, le loyer antérieur est rétabli; le the former rent is re-established; the
locataire peut, dans le mois du lessee may contest the
rétablissement de loyer, s’adresser au re-establishment of the rent within one
tribunal pour contester ce month after it is re-established.
rétablissement.
Le consommateur qui a conclu un contrat de crédit assujetti à la Loi sur la

protection du consommateur (L.p.c.)15 jouit d’une mesure analogue. En effet,
lorsque le solde de sa dette devient exigible à la suite de son défaut, il peut demander
15
RLRQ, ch. P-40.1 (ci-après L.p.c.).
au tribunal de modifier les modalités de paiement. L’intervention du juge tient alors

compte de la capacité de payer du consommateur et de la raison pour laquelle le
consommateur est en défaut. Le tribunal peut imposer les conditions qu’il juge
raisonnables ou autoriser le consommateur à remettre le bien au commerçant.
L’essentiel de ce mécanisme est énoncé aux articles 107 et 109 L.p.c. :
107. Si le consommateur ne remédie 107. If the consumer does not remedy

pas au fait qu’il est en défaut dans le his default within the time provided
délai prévu à l’article 106, le solde de for in section 106, the balance of his
son obligation devient exigible à obligation becomes payable unless,
moins que, sur requête du upon a motion by the consumer, the
consommateur, le tribunal ne modifie court changes the terms and conditions
les modalités de paiement selon les of payment according to such
conditions qu’il juge raisonnables ou conditions as it considers reasonable
n’autorise le consommateur à remettre or authorizes the consumer to return
le bien au commerçant. the goods to the merchant
109. La requête doit être instruite et 109. The motion must be heard and
jugée d’urgence en tenant compte decided by preference, considering, in
notamment des éléments suivants: particular, the following facts:
(a) le total des sommes que le (a) the total of amounts that the
consommateur doit débourser en vertu consumer must disburse under the
du contrat; contract;
(b) les sommes déjà payées; (b) the sums already paid;
(c) la valeur du bien au moment où le (c) the value of the goods at the time
consommateur est devenu en défaut; of the consumer’s default;
(d) le solde dû au commerçant; (d) the balance due to the merchant;
(e) la capacité de payer du (e) the consumer’s ability to pay; and
consommateur; et (f) the reason for which the consumer
(f) la raison pour laquelle le is in default.
consommateur est en défaut.
Ces deux illustrations montrent que le législateur québécois désire protéger les
contractants qu’il juge vulnérables contre leurs revers de fortune. Ces dispositions
ont donc un domaine d’application plus large que celles qui se limitent aux effets
des crises économiques, en permettant de tenir compte de facteurs propres à la
partie protégée et qui ne sont pas toujours directement liés au climat économique.
Autrement dit, la situation précaire de la partie protégée peut être le résultat d’une
crise financière, mais elle peut aussi s’expliquer par des circonstances propres à
cette partie (congédiement, problèmes de santé, etc.) qui ont créé ou accentué une
situation précaire sans égard à la conjoncture économique.
4.2.3 La possibilité d’aménagement conventionnel de

l’imprévision par voie d’une clause de hardship
Les autorités s’entendent pour reconnaître aux parties la possibilité de permettre,

sur une base conventionnelle, une intervention des tribunaux dans les rapports
contractuels en cas d’imprévision.16
Liberté contractuelle quant à l’existence d’une clause permettent l’intervention
du tribunal sur le fondement de l’imprévision L’aménagement conventionnel
par lequel les parties permettent l’intervention du tribunal pour imprévision
peut prendre la forme d’une clause que les parties insèrent au contrat.17 On parle
communément d’une clause de hardship, bien que d’autres appellations soient
également employées pour la désigner – « clause de sauvegarde », « clause d’équité
», « clause de renégociation », « clause de révision » ou encore « clause d’imprévision
».18
Il arrive également que les parties s’en remettent à des instruments de soft law,
tels que les Principes d’Unidroit relatifs aux contrats du commerce international,
qui permettent de porter atteinte à l’intangibilité du contrat sur le fondement du
hardship en vertu des articles 6.2.2 et 6.2.3. Le renvoi aux Principes d’Unidroit
s’analyse alors comme une clause externe qui fait partie du contrat (art. 1435
C.c.Q.).19
Liberté contractuelle quant aux conditions, modalités et effets d’une intervention
du tribunal sur le fondement de l’imprévision Comme les clauses de hardship
résultent de la liberté contractuelle des parties, elles sont susceptibles de varier eu
égard aux conditions, aux modalités et aux effets d’une intervention du tribunal
fondée sur l’imprévision. Il suffit de s’attarder ici à certaines tendances qui résultent
des pratiques contractuelles les plus courantes et, dans certains cas, du renvoi à des
instruments de soft law qui reconnaissent l’imprévision.
Au sujet des conditions qui permettent une intervention du tribunal fondée sur le
changement de circonstances, les parties auront généralement tendance à préciser
que l’intervention se limitera aux changements de circonstances exceptionnels,
imprévisibles et qui ne sont pas attribuables à la partie qui en demande l’application.
De cette façon, les parties minimisent les risques d’atteinte à la stabilité contractuelle,
tout en assurant un mécanisme propre à favoriser la bonne foi et l’équité. Il s’agit,
16
Pineau et al. (2001) no 285, p 519; Lluelles et Moore (2012) nos 2238–2239, p 1292–1294;
Lluelles (2006) nos 34-35, p 53–56; Baudouin et al (2013) no 442, p 533–534. Sur l’utilisation de
telles clauses, voir Moisan (1994) p 320 et s.
17
Même si elle est en principe valide, une clause de hardship peut être invalidée pour certains
motifs (clause abusive, objet qui n’est pas déterminé ou déterminable, application arbitraire en
contravention du principe de bonne foi). À ce sujet, voir Baudouin et al (2013) no 442, p 534 et no
448, p 544.
18
Lluelles et Moore (2012) no 2238, p. 1292; Lluelles (2006) no 34, p 53.
19
Lluelles et Moore (2012) no 2239, p. 1293–1294; Lluelles (2006) no 35, p 55.
en somme, de la recherche d’un équilibre qui n’est pas sans inspirer les auteurs qui
préconisent la reconnaissance d’une règle non codifiée en matière d’imprévision
dans le droit commun des contrats (voir ci-dessous, partie 4.3.2).
S’agissant des modalités, l’intervention revient en principe au tribunal judiciaire
normalement compétent pour trancher un litige résultant du contrat. Cela dit, les
parties qui auront eu la prévoyance d’insérer une clause de hardship auront aussi,
dans plusieurs cas, prévu que les litiges contractuels seront soumis à l’arbitrage.20
C’est sans doute ce qui explique la rareté des situations où les tribunaux judiciaires
ont été appelés à appliquer une clause de hardship.
Quant aux effets, l’autorité compétente – qu’il s’agisse d’un tribunal judiciaire
ou d’une instance arbitrale – disposera généralement du pouvoir de mettre fin au
contrat, une fois qu’il constate l’échec de démarches destinées à favoriser une
renégociation entre les parties. Dans certains cas, elle permettra de soulever une
fin de non-recevoir ou une clause de non-responsabilité face à la mise en œuvre
du droit à l’exécution du cocontractant.21 La clause de hardship peut aller plus
loin et permettre à l’autorité compétente d’adapter le contrat de façon à rétablir
l’équilibre rompu par le changement exceptionnel et imprévu de circonstances.22
C’est notamment le cas lorsque le contrat renvoie aux Principes d’Unidroit,
lesquels donnent le choix entre la terminaison et l’adaptation du contrat, au nom
du favor contractus.23
4.3 Le droit prospectif: Les incertitudes du droit québécois

face au silence du législateur aux lendemains de la
réforme du code civil
En s’abstenant d’insérer une disposition générale et explicite en matière

d’imprévision, lors de l’adoption du Code civil du Québec, le législateur québécois
a engendré des difficultés d’interprétation qui divisent la doctrine. Le débat oppose
deux grands principes en matière contractuelle, soit la stabilité des contrats, d’une
part, et la promotion de la bonne foi et de l’équité entre les parties, d’autre part.
Alors que certains auteurs considèrent que l’absence de reconnaissance formelle de
l’imprévision s’analyse comme un rejet de ce mécanisme d’adaptation des contrats
et justifie de donner priorité à la stabilité contractuelle, d’autres soutiennent que
l’importance accrue du principe de bonne foi dans le nouveau code justifie la recon-
naissance par les tribunaux de cette règle non codifiée.
20
Sur la juridiction arbitrale, voir Moisan (1994) p 329–331.
21
Par ex. Canada Starch Co. c. Gill & Dufus (Canada) Ltd., [1990] R.L. 602 (C.A.).
22
Moisan (1994) p 331.
23
À ce sujet, voir Crépeau et Charpentier (1998) p 32–33 et 122–125.
4.3.1 Le rejet de l’imprévision en l’absence d’une disposition

générale qui en admet l’existence
Une partie de la doctrine soutient que, comme dans le droit antérieur, le droit nou-
veau ne permet pas de reconnaître l’imprévision. La jurisprudence se présente
effectivement sous le signe de la continuité depuis l’entrée en vigueur du nouveau
code.
4.3.1.1 Les motifs avancés au soutien du statu quo quant au rejet de

l’imprévision
Les opposants à l’imprévision fondent leur position sur une analyse de l’historique
législatif, soit l’ensemble des travaux ayant menés à l’adoption du Code civil du
Québec, ainsi que sur la logique interne du Code. À leur avis, malgré le développe-
ment de la nouvelle moralité contractuelle, le devoir de bonne foi ne permet pas de
remettre en question le statu quo quant au rejet de l’imprévision.
Historique législatif S’agissant des travaux ayant mené à la réforme, les tenants
de cette position considèrent que le législateur a rejeté la règle de l’imprévision en
toute connaissance de cause. En ne retenant pas la proposition formulée par l’ORCC
dans son projet de 1977 (voir ci-dessus, partie 4.2.1), il aurait implicitement choisi
de privilégier la voie de la stabilité contractuelle, sous réserve des quelques cas
particuliers où il permet explicitement aux tribunaux d’intervenir sur le fondement
de l’imprévision.
Logique interne du Code. Intangibilité du contrat (pact sunt servanda), nomi-

nalisme et énumération limitative des cas où l’imprévision est recon-
nue Différents arguments relèvent de l’idée de logique interne du Code civil du
Québec pour s’opposer à la reconnaissance de l’imprévision.
Le principe de l’intangibilité du contrat (pacta sunt servanda) constitue
l’argument central des auteurs opposés à la reconnaissance de l’imprévision.24
L’article 1439 C.c.Q. reprend le principe qui était auparavant énoncé à l’article
1022, al. 3 C.c.B.C. :
24
Pineau et al. (2001) no 285, p 515–521. Certains auteurs mettent également le principe de l’effet
obligatoire du contrat (art. 1434 C.c.Q.) au cœur de leur analyse: Lluelles et Moore (2012) no 2230,
p 1286; Lluelles (2006) no 26, p 44–45. Un auteur fait le constat que le législateur a maintenu le
statu quo, tout en déplorant que « [l]a stratégie de perpétuation du rejet de la théorie du juste prix
et du juste salaire par la société ultra-libérale […] entraîne à sa suite la fermeture aux idées mod-
ernes sur l’imprévision » Tancelin (2009) no 352, p 247; voir aussi nos 353–353.1, p 247–248. Un
autre auteur a d’abord conclu que le Code civil du Québec enlevait toute marge de manœuvre aux
tribunaux, pour ensuite se raviser dans ses écrits postérieurs en soutenant qu’une intervention
judiciaire peut se fonder sur la nouvelle moralité contractuelle : Jobin (2000) p 69–70.
1439. Le contrat ne peut être résolu, 1439. A contract may not be resolved,
résilié, modifié ou révoqué que pour resiliated, modified or revoked except
les causes reconnues par la loi ou de on grounds recognized by law or by
l’accord des parties. agreement of the parties.
Un argument additionnel, dans le cas d’une obligation de nature pécuniaire, se

fonde sur le principe du nominalisme désormais codifié au premier alinéa de l’article
1564 C.c.Q.25 Cet article rejette la notion de « dette de valeur », soit la possibilité de
moduler les obligations d’une partie en fonction des variations monétaires :
1564. Le débiteur d’une somme 1564. Where the debt consists of a

d’argent est libéré par la remise au sum of money, the debtor is released
créancier de la somme nominale by paying the nominal amount due in
prévue, en monnaie ayant cours légal money which is legal tender at the
lors du paiement. time of payment.
[…] […]
Enfin, l’existence de cas particuliers où le Code reconnaît explicitement

l’imprévision – pour des situations bien délimitées – sert d’appui à un argument
d’interprétation selon lequel le législateur n’aurait pas entendu donner un domaine
d’application plus large au pouvoir d’intervention des tribunaux sur le fondement
d’un changement de circonstances.26
Stabilité contractuelle Le processus de réforme du code civil a soulevé, en matière
d’obligations contractuelles, l’opposition entre deux objectifs : d’une part, préserver
la stabilité contractuelle, et d’autre part, permettre une remise en cause de
l’intangibilité ou de l’effet obligatoire du contrat au nom de la bonne foi et de
l’équité.
Si certains mécanismes de droit nouveau ont permis de porter atteinte dans une
certaine mesure à la stabilité contractuelle – notamment en permettant d’imposer la
nullité ou la réduction d’une clause jugée abusive27 – des voix se sont élevées à
l’encontre de la codification de mécanismes de portée plus large. Tel est le cas de la
lésion entre majeurs, qui a été fermement écartée (art. 1405 C.c.Q.), malgré la prop-
osition de l’ORCC, au nom de la stabilité contractuelle. Le refus d’admettre
l’imprévision – quoique moins explicite – pourrait relever de la même logique. Les
auteurs opposés à la reconnaissance de l’imprévision soulignent d’ailleurs le risque,
en cas de crises financières, de réactions en chaîne susceptibles de porter encore
davantage atteinte à la stabilité contractuelle.28
25
Lluelles et Moore (2012) no 2230, p 1286, et no 2233, p. 1289; Lluelles (2006) no 26, p 44, et no
29, p 48.
26
Lluelles et Moore (2012) no 2233, p 1289; Lluelles (2006) no 29, p 48–49.
27
Clauses abusives dans un contrat de consommation ou d’adhésion (art. 1379, 1384 et 1437
C.c.Q.); clause pénale abusive (art. 1623 C.c.Q.).
28
Lluelles et Moore (2012) no 2232, p 1288–1289; Lluelles (2006) no 28, p 48.
Limites à la portée de la nouvelle moralité contractuelle Tout en reconnaissant

le développement de la nouvelle moralité contractuelle, les auteurs opposés à la
reconnaissance de l’imprévision par les tribunaux considèrent que le devoir de
bonne foi ne constitue pas une assise suffisante pour imposer aux parties de renégocier
le contrat à travers une obligation implicite de coopération.29
Selon cette position doctrinale, il ne saurait y avoir de clause implicite fondée sur
la maxime rebus sic stantibus et toute clause en ce sens doit nécessairement avoir
été explicitée par les parties.
Synthèse des arguments de la doctrine réfractaire à l’imprévision en droit

québécois Pour les auteurs opposés au principe d’imprévision, le législateur avait
l’opportunité d’en reconnaître l’existence et ne l’a pas fait. Les parties ont égale-
ment la possibilité d’aménager leurs rapports de façon à admettre une intervention
du tribunal en cas de changement de circonstances. Si la loi ou le contrat ne prévoit
pas explicitement le pouvoir du tribunal de porter atteinte aux principes de
l’intangibilité du contrat et du nominalisme, ceux-ci doivent prévaloir au nom de la
stabilité contractuelle.
La jurisprudence actuelle semble effectivement suivre cette position en
s’inscrivant dans un mouvement de continuité avec le droit antérieur.
4.3.1.2 La continuité de la jurisprudence en matière d’imprévision
Jurisprudence antérieure à la réforme du code civil Sous le Code civil du Bas

Canada, l’imprévision n’a pas fait l’objet d’un grand nombre de décisions, mais la
jurisprudence rendue sur la question ne laisse planer aucun doute sur le refus des
tribunaux de l’admettre en droit québécois.30 L’intangibilité du contrat joue un rôle
majeur dans cette jurisprudence opposée à l’imprévision.
Jurisprudence rendue depuis l’entrée en vigueur du Code civil du Québec Depuis

l’entrée en vigueur du Code civil du Québec, en 1994, les tribunaux ont été appelés
à revoir la question de l’imprévision dans le contexte du droit nouveau. Or, les
quelques décisions recensées sur la question se situent dans la continuité de celles
rendues sous le droit antérieur et rejettent l’imprévision.31
29
Lluelles et Moore (2012) nos 2250–2251, p 1301–1302; Lluelles (2006) nos 46–47, p 65–67.
Selon ces auteurs, il convient de distinguer les situations où les parties n’ont rien envisagé eu égard
à un possible changement de circonstances et celles où la partie avantagée aurait fait valoir qu’on
« pourrait toujours s’arranger » en cas de problèmes, ce qui constituerait une faute si cette partie
négligeait d’y donner suite.
30
Verona Construction Ltd. c. Frank Ross Construction Ltd., [1961] R.C.S. 195, conf. [1959] B.R.
674; Grant Mills Ltd. c. Universal Pipeline Welding Ltd., [1975] C.S. 1203; H. Cardinal construc-
tion Inc. c. Dollard-des-Ormeaux (Ville de), [1987] R.L. 672 (C.A.).
31
Placements Claude Gohier inc. c. Supermarché Le Blainvillois inc., J.E. 2004–566 (C.Q.);
Transport Rosemont inc. c. Montréal (Ville de), J.E. 2008–2273 (C.S.). Voir aussi en ce sens
4.3.2 L’ouverture à l’imprévision en l’absence d’un rejet

formel par le législateur
Certains auteurs, avant la réforme du code civil, constataient avec regret le rejet de
l’imprévision par le droit positif.32 Aux lendemains de l’adoption du Code civil du
Québec, l’appui doctrinal en faveur d’une reconnaissance de l’imprévision s’est
accru et les tenants de cette position soutiennent que l’absence de rejet formel du
principe de la part du législateur – contrairement à ce qui s’est produit en matière de
lésion – laisse la porte ouverte à sa reconnaissance par voie jurisprudentielle. Cette
proposition doctrinale suppose qu’advenant un revirement sur la question, la juris-
prudence se substituera au législateur afin de définir les règles applicables à
l’intervention des tribunaux en matière d’imprévision.
4.3.2.1 Les motifs avancés au soutien d’une reconnaissance de

l’imprévision par les tribunaux
La position des auteurs favorables à l’imprévision se fonde principalement sur

l’existence d’une obligation implicite de coopération entre les parties, au nom de la
nouvelle moralité contractuelle marquée par les principes de bonne foi et d’équité.
Pour ces auteurs, le souci de promouvoir la nouvelle moralité contractuelle doit
avoir préséance sur la conception traditionnelle de la stabilité contractuelle, pour
l’envisager plutôt sous l’angle du favor contractus. Cette proposition doctrinale
prend aussi appui sur le droit comparé, en faisant référence aux systèmes juridiques
étrangers et aux instruments de soft law qui prônent la reconnaissance de
l’imprévision.
Obligation de coopération fondée sur les principes de bonne foi et
d’équité S’autorisant de l’affirmation de la bonne foi, une partie de la doctrine
québécoise prône l’intervention judiciaire en cas d’imprévision.33 Les tenants d’une
telle intervention judiciaire s’appuient sur la reconnaissance par les tribunaux dans
le droit antérieur, puis la codification dans le nouveau code, du rôle de la bonne foi.
Québec (Procureur général) c. Kabakian-Kechichian, [2000] R.J.Q. 1730 (C.A.); Châteauguay

(Ville de) c. Léry (Ville de), J.E. 2009–1838 (C.S.).
32
Tancelin (1986) no 245, p. 145–146; Tancelin et Gardner (1990) p 183–184; Soucy (1990) p 77
et s. Pour un point de vue plus nuancé ou réfractaire à l’imprévision à la même époque, voir
Baudouin (1969) p 165 et s.; Pineau et Burman (1988) no 199, p. 281–282; Baudouin (1989) nos
355–357, p 238–240.
33
Martin (1993) p 624–625; Bédard (1997) p 774 et s.; Jobin (2004) p 693; Baudouin et al (2013)
no 446, p 538–541; Jobin (2012) p 383–386.
Le principe de la bonne foi34 – auquel certains associent également celui d’équité35 –

a fait l’objet d’une codification parmi les dispositions générales relatives à l’exercice
des droits civils, ainsi que dans le contexte propre au droit des obligations :
6. Toute personne est tenue d’exercer 6. Every person is bound to exercise

ses droits civils selon les exigences de his civil rights in good faith.
la bonne foi.
1375. La bonne foi doit gouverner la 1375. The parties shall conduct
conduite des parties, tant au moment themselves in good faith both at the
de la naissance de l’obligation qu’à time the obligation is created and at
celui de son exécution ou de son the time it is performed or
extinction. extinguished.
Cette notion de bonne foi vise le respect d’une certaine « moralité contractuelle
». Selon ce raisonnement, si les parties avaient su ou avaient pu raisonnablement
prévoir les événements altérant fondamentalement l’équilibre des prestations, elles
n’auraient pas contracté dans ces termes. Si la bonne foi guide bel et bien les parties,
ces dernières parviendront à adapter leur contrat initial conformément à une
obligation implicite de coopération. Il s’agit, en quelque sorte, d’intégrer en droit
privé une clause implicite fondée sur la maxime de droit international rebus sic
stantibus, de façon à forcer les parties à réaménager leurs relations à la lumière des
circonstances nouvelles.36
Pour les auteurs favorables à l’imprévision, en cas de circonstances exception-
nelles où l’obligation de coopération entre en jeu pour contraindre les parties à une
renégociation, le principe de bonne foi doit prévaloir sur les principes normalement
applicables, soit celui de l’intangibilité du contrat (art. 1439 C.c.Q.) et aussi, dans le
cas d’obligations à caractère pécuniaire, celui du nominalisme (art. 1564 C.c.Q.).
En dehors de circonstances exceptionnelles – c’est-à-dire lorsque le changement de
circonstances s’inscrit dans l’ordre normal des choses – il ne saurait en revanche
être question d’imposer une telle obligation de renégocier, et les principes
d’intangibilité du contrat et du nominalisme auront plein effet.
L’argument d’interprétation fondé sur l’existence de cas particuliers – interpré-
tés comme une indication par le législateur du rejet de l’imprévision dans une per-
spective plus large – est écarté par les tenants de l’imprévision. Ces derniers
soutiennent que les impératifs de bonne foi et d’équité doivent avoir préséance sur
des arguments purement formels. Ils font valoir notamment, à cet égard, que les
34
La notion de « bonne foi » s’entend alors au sens d’une norme de comportement. Il ne s’agit pas
d’une opposition entre les notions de « bonne foi » et de « mauvaise foi », comme c’est le cas
lorsqu’il est question de la « croyance inexacte qu’on agit conformément au droit ». Sur cette dis-
tinction, voir Centre de recherche en droit privé et comparé du Québec (2003) v. « bonne foi » et «
mauvaise foi ».
35
Baudouin et al (2013) no 159, p. 263–264.
36
Martin (1993) p 620–624. Voir aussi à ce sujet Crépeau et Charpentier (1998) p 116–117.
tribunaux n’ont pas hésité, dans le droit antérieur, à mettre de côté le principe de la
force obligatoire du contrat pour sanctionner l’abus de droit contractuel. Si les tri-
bunaux se sont ainsi permis de porter atteinte aux principes de l’effet obligatoire et
de l’intangibilité du contrat quant à l’abus de droit contractuel au nom de la justice
contractuelle, ils pourraient, en toute logique, élargir leur pouvoir d’intervention
pour l’étendre à la problématique de l’imprévision.37
Pour une autre conception de la stabilité contractuelle(favor contrac-
tus) L’intervention judiciaire – qui peut aller jusqu’à mettre fin au contrat – ne
constitue pas une fin en soi pour les tenants d’un tel pouvoir d’intervention. Elle
représente plutôt un incitatif à la renégociation du contrat, et s’inscrit dans l’esprit
du favor contractus. Dans cette perspective, l’idée de stabilité contractuelle se
défend au nom de la viabilité de l’entente, surtout dans le cas de contrats à long
terme. La renégociation vise à éviter que le changement de circonstances n’engendre
un déséquilibre tel que l’exécution du contrat constitue une véritable injustice.
Selon ces auteurs, l’intervention du juge, qui se limite à des circonstances excep-
tionnelles, ne risquerait pas de provoquer les réactions en série appréhendées. Elle
favoriserait, au contraire, le maintien des relations contractuelles et la préservation
de la force obligatoire du contrat.38
Apport du droit comparé et recherche d’une plus grande modernité du

droit Les tenants de la reconnaissance de l’imprévision en droit québécois font
valoir, à travers une analyse comparative, la percée de ce mécanisme dans d’autres
systèmes juridiques où l’élément de bonne foi est également mis de l’avant – notam-
ment en Suisse, en Allemagne et en Italie.39
Les Principes d’Unidroit sont également cités en exemple au soutien de la recon-
naissance d’un pouvoir d’intervention des tribunaux, quoique l’élément de bonne
foi soit absent du libellé des Principes et que le favor contractus ait sans doute joué
un rôle plus déterminant en matière de hardship.
4.3.2.2 Les règles applicables advenant la reconnaissance de

l’imprévision par les tribunaux
Advenant que la jurisprudence opère un revirement et admette la proposition

doctrinale favorable à l’imprévision, il lui reviendra également d’en préciser les
règles d’application, soit les conditions qui donnent ouverture à une intervention du
tribunal, les modalités d’une telle intervention, ainsi que ses effets.
Conditions d’application susceptibles de donner ouverture à une intervention
du tribunal sur le fondement de l’imprévision Les tenants du pouvoir
d’intervention des tribunaux sur le fondement de l’imprévision le restreignent à des
37
Jobin (2012) p 388.
38
Bédard (1997) p 784 et s.; Baudouin et al (2013) no 447, p 542–543; Jobin (2012) p 389–390.
39
Bédard (1997) p 786 et s.; Baudouin et al (2013) no 444, p 536–537; Jobin (2012) p 389.
circonstances très exceptionnelles – ce qui constituerait un élément commun avec

d’autres systèmes juridiques qui en admettent déjà l’existence. L’imprévision est
toujours conçue comme une exception, par essence limitée, au principe fondamen-
tal de l’intangibilité du contrat.
Quoique la formulation exacte varie d’un auteur à l’autre, les principales condi-
tions d’applications proposées se rassemblent autour des éléments suivants :
– L’exécution du contrat devient excessivement onéreuse pour l’une des parties,
compte tenu de la valeur de la prestation offerte ou de la contrepartie tirée du
contrat;
– le déséquilibre des prestations est attribuable à un changement de circonstances
imprévisible au moment de la formation du contrat;
– les circonstances invoquées ne sont pas imputables à la partie qui fait valoir
l’imprévision.40
Modalités d’intervention des tribunaux sur le fondement de
l’imprévision L’intervention des tribunaux en l’absence d’une clause de hardship,
si elle venait à être admise en jurisprudence, viserait surtout des situations où les
parties ne se sont pas prévalues de la clause d’arbitrage. Les tribunaux judiciaires
seraient alors compétents pour assurer l’application des règles de l’imprévision.
Il n’est pas exclu que les parties soient tout de même assujetties à une convention
d’arbitrage. L’autorité arbitrale peut alors disposer d’une marge de manœuvre plus
considérable que les tribunaux judiciaires, si la convention lui confie un rôle
d’amiable compositeur.
L’admission de l’imprévision proposée en doctrine, nous l’avons vu plus tôt, se
fonderait principalement sur l’obligation de coopération. Elle placerait donc l’idée
de renégociation au cœur de l’exercice des recours de la partie victime d’un change-
ment exceptionnel de circonstances.
La renégociation peut être entrevue sous différents angles :
– Elle peut être conçue comme une condition d’exercice des droits de la partie
victime du changement de circonstances, c’est-à-dire que cette dernière doit
avoir tenté de renégocier avant de saisir le tribunal d’une demande pour adapter
le contrat ou y mettre fin. L’absence de tentative de renégociation de sa part
pourrait alors justifier une fin de non-recevoir face à la demande soumise au tri-
bunal par la partie victime en vue pour déterminer le sort du contrat.
– Elle peut aussi est vue comme un effet de l’intervention du tribunal, si l’on envis-
age la possibilité d’une intervention du tribunal en deux temps, d’abord pour
imposer aux parties le devoir de renégocier,41 puis pour statuer sur le sort du
contrat face à l’échec de la négociation.
40
Baudouin et al (2013) no 444, p 535, et no 446, p 541.
41
Baudouin et al (2013) no 446, p 541.
Peu importe le rôle attribué à la renégociation, il demeure qu’elle figure au cœur

des modalités d’intervention des tribunaux sur le fondement de l’imprévision.
Les causes de l’échec de la renégociation peuvent être variables. Parfois, la partie
victime et son cocontractant auront cherché une voie de sortie de bonne foi,
sans toutefois y parvenir. Dans d’autres cas, l’échec sera attribuable à l’absence
de tentative véritable par la partie victime ou un défaut de collaboration de son
cocontractant. Les causes de l’échec de la renégociation pourront, dans certains cas,
avoir un impact quant aux effets de l’intervention judiciaire, notamment l’attribution
de dommages-intérêts.
Effets de l’intervention des tribunaux sur le fondement de l’imprévision. Toujours
dans l’hypothèse où la jurisprudence admettrait l’imprévision en droit québécois, le
tribunal qui constate l’échec des tentatives de renégociation devrait statuer sur le
sort du contrat et, dans certains cas, assortir son jugement de l’octroi de mesures
complémentaires telles que des dommages-intérêts.
S’agissant du sort du contrat, il n’existe pas d’unanimité quant au pouvoir du
tribunal d’adapter le contrat pour rétablir le déséquilibre engendré par le change-
ment de circonstances. Cette alternative à la rupture du lien contractuel constitue la
forme la plus aboutie du favor contractus. Certains auteurs, s’inspirant entre autres
de la proposition de l’ORCC,42 y sont favorables.43 D’autres considèrent qu’une
telle forme de révision irait trop loin en matière d’intervention judiciaire dans les
relations contractuelles et que l’échec de la renégociation devrait tout au plus
amener à mettre fin au contrat, ou encore à en neutraliser les effets au moyen d’une
fin de non-recevoir face à la demande d’exécution de la partie avantagée.44
Le droit à des dommages-intérêts suppose nécessairement l’inexécution d’une
obligation injustifiée d’une obligation résultant du contrat (art. 1458 et 1590 C.c.Q.).
Dès lors, le simple fait de se prévaloir des règles relatives à l’imprévision
n’entraînerait pas, à la charge de la partie victime du changement de circonstances,
le paiement de dommages-intérêts au bénéfice de son cocontractant pour les
conséquences de la renégociation du contrat et, le cas échéant, de sa révision, de sa
terminaison ou de l’imposition d’une fin de non-recevoir.
En revanche, il pourrait arriver que le contractant avantagé par le changement de
circonstances soit appelé à verser des dommages-intérêts au cocontractant victime
du déséquilibre des prestations. Ce serait notamment le cas s’il a manqué à son
obligation de coopération par un refus de renégocier le contrat malgré l’invitation
de son cocontractant ou encore en participant à la renégociation avec l’intention
ferme de la faire échouer. La mesure des dommages-intérêts sera alors en fonction
du préjudice résiduel, c’est-à-dire de la part du préjudice non réparé à la suite de
l’intervention du tribunal (qui pourra, par exemple, avoir ordonné la révision ou la
terminaison du contrat, ou encore l’imposition d’une fin de non-recevoir). En
42
Office de révision du Code civil, Projet de code civil (1978) livre V, art. 75 : « […] le tribunal
peut, nonobstant toute convention contraire, résoudre, résilier ou réviser un contrat […] ».
43
Martin (1993) p 631–632. Voir aussi en ce sens Bédard (1997) p 791–793.
44
Baudouin et al (2013) no 446, p 541–542; Jobin (2012) p 387.
revanche, le simple échec de la renégociation, menée de bonne foi par les deux
parties, ne constituera pas une inexécution contractuelle susceptible d’entraîner
l’attribution de dommages-intérêts à la partie victime du changement de
circonstances.
4.4 Conclusion
Le sort réservé aux contractants victimes d’imprévision en droit québécois est

encore très incertain. En effet, bien que le législateur n’ait pas saisi l’occasion de la
réforme du code civil pour adopter une règle relative à l’imprévision et qu’il ne
semble pas avoir l’intention d’intervenir à court ou moyen terme, la situation pour-
rait tout de même évoluer rapidement si les tribunaux jugeaient opportun d’opérer
un revirement en la matière. Ceux qui s’intéressent à la question voient dans une
affaire actuellement en instance l’occasion pour les tribunaux d’intervenir pour
changer l’état du droit positif ou, au contraire, pour réaffirmer le statu quo.45
Par ailleurs, l’imprévision est devenue une question fort discutée au Québec
depuis une vingtaine d’année. Les développements qui y sont consacrées dans les
différents ouvrages de doctrine et la multiplication des articles à son sujet dans les
revues universitaires et professionnelles ont pour effet d’enrichir les réflexions des
juges, mais aussi d’alerter les praticiens face à cette problématique. Dès lors, les
risques liés aux changements de circonstances sont plus susceptibles d’être pris en
compte lors de la négociation des contrats à long terme, ce qui peut à tout le moins
permettre de pallier l’incertitude résultant du silence du législateur.
Réferences
Baudouin, J.-L. 1969. Theory of imprevision and judicial intervention to change a contract. In
Essays on the law of obligations, dir. Dainow Joseph, 151. Baton Rouge: Louisiana State
University Press.
Baudouin, J.-L. 1989. Les obligations, 4e éd. Cowansville: Éditions Yvon Blais.
Baudouin, J.-L., et P.-G. Jobin. 2013. Les obligations, 7e éd. par Pierre-Gabriel Jobin et Nathalie
Vézina. Cowansville: Éditions Yvon Blais.
Bédard, J. 1997. Réflexions sur la théorie de l’imprévision en droit québécois, 42 R.D. McGill:
761.
Centre de recherche en droit privé et comparé du Québec. 2003. Dictionnaire de droit privé. Les
obligations. Cowasville: Éditions Yvon Blais.
Commentaires du ministre de la Justice, t. I et II. 1993. Québec: Publications du Québec.
45
Churchill Falls (Labrador) Corporation Ltd. c. Hydro-Québec, J.E. 2014–1469, 2014 QCCS
3590. Dans cette affaire, le tribunal de première instance a refusé d’intervenir sur le fondement de
l’imprévision. La partie qui demandait l’intervention du tribunal pour réviser le contrat sur le fon-
dement de la bonne foi a porté la décision en appel (500-09-024690-141).
Crépeau, P.-A., et É. Charpentier. 1998. Les Principes d’Unidroit et le Code civil du Québec :
Valeurs partagées?/The Unidroit Principles and the Civil Code of Quebec: Shared Values?
Scarborough: Carswell.
Jobin, P.-G. 2000. La modernité du droit commun des contrats dans le Code civil du Québec :
Quelle modernité?, RIDC 49.
Jobin, P.-G. 2004. L’étonnante destinée de la lésion et de l’imprévision dans la réforme du code
civil du Québec, RTD civ. 693.
Jobin, P.-G. 2012. L’imprévision dans la réforme du code civil et aujourd’hui. In Mélanges Jean-
Louis Baudouin, dir. Benoît Moore, 375. Cowansville: Éditions Yvon Blais.
Lluelles, D. 2006. La révision du contrat en droit québécois, 36 R.G.D. 25.
Lluelles, D., et B. Moore. 2012. Droit des obligations, 2e éd. Montréal: Éditions Thémis.
Martin, S. 1993. Pour une réception de la théorie de l’imprévision en droit positif québécois, 34 C.
de D. 599.
Moisan, P. 1994. Technique contractuelle et gestion des risques dans les contrats internationaux :
les cas de force majeure et d’imprévision 35 C. de D. 281.
Office de révision du Code civil. 1978. Rapport sur le Code civil, t. I, Projet de code civil. Québec:
Éditeur officiel.
Office de révision du Code civil. 1978. Rapport sur le Code civil, t. II, Commentaires, vol. 2.
Québec: Éditeur officiel.
Pineau, J., et D. Burman. 1988. Théorie des obligations, 2e éd. Montréal: Thémis.
Pineau, J., D. Burman, et S. Gaudet. 2001. Théorie des obligations, 4e éd. par Jean Pineau et Serge
Gaudet, Montréal: Éditions Thémis.
Soucy, R. 1990. Étude sur les abus de droit, R.L.n.s. 1.
Tancelin, M. 1986. Des obligations. Contrat et responsabilité, 4e éd., Montréal: Wilson et Lafleur.
Tancelin, M. 2009. Des obligations en droit mixte du Québec, 7e éd. Montréal: Wilson et Lafleur.
Tancelin, M., et D. Gardner. 1990. Jurisprudence commentée sur les obligations, 4e éd. Montréal:
Wilson et Lafleur.
Liste des jugements
Canada Starch Co. c. Gill & Dufus (Canada) Ltd., [1990] R.L. 602 (C.A.).
Châteauguay (Ville de) c. Léry (Ville de), J.E. 2009–1838 (C.S.).
Churchill Falls (Labrador) Corporation Ltd. c. Hydro-Québec, J.E. 2014–1469, 2014 QCCS 3590.
Fabrique de la paroisse de Notre-Dame de la Paix c. Ross (Succession de), 2011 QCCS 2283.
Grant Mills Ltd. c. Universal Pipeline Welding Ltd., [1975] C.S. 1203.
H. Cardinal construction Inc. c. Dollard-des-Ormeaux (Ville de), [1987] R.L. 672 (C.A.).
Hatley (Municipalité de) c. Court Good Cheer, [1997] R.D.I. 364 (C.S.).
Marmet (Succession de), J.E. 99–625 (C.S.).
Placements Claude Gohier inc. c. Supermarché Le Blainvillois inc., J.E. 2004–566 (C.Q.).
Québec (Procureur général) c. Kabakian-Kechichian, [2000] R.J.Q. 1730 (C.A.).
Stevenson c. National Trust Co., J.E. 95–780 (C.S.).
Transport Rosemont inc. c. Montréal (Ville de), J.E. 2008–2273 (C.S.).
Verona Construction Ltd. c. Frank Ross Construction Ltd., [1961] R.C.S. 195, conf. [1959]
B.R. 674.
Chapter 5
Can Financial Crisis Lead to the Application
of the Institute of Changed Circumstances
Under Croatian Law?
Maja Bukovac Puvača, Gabrijela Mihelčić, and Iva Tuhtan Grgić
Abstract The consequences of the global financial crisis which began to manifest
in Croatia during 2008 have not ended to this day. Doing business during the finan-
cial crisis is significantly hampered and imposes the need to devote special attention
to the question of binding nature of a contract whose performance would be exces-
sively onerous or would cause an excessive loss for one contracting party.
Croatian law adopts the clausula rebus sic stantibus as a theoretical concept that
defines the limits of attachment to a contract. Therefore, the consequences of the
financial crisis may be considered only within the framework of the general rule on
variation or termination of contract in case of change of circumstances. Contracting
parties may invoke on an event as a consequence of the financial crisis as a changing
circumstance only if all statutory requirements are fulfilled. Hence, the authors pro-
vided analysis of statutory requirements for termination or modification of the con-
tract. Furthermore, the authors analyse the circumstances which the court should
take into consideration when deciding on variation or termination of the contract,
underlining the principle of good faith and fair dealing as the fundamental criterion
by which the courts should be governed.
Clausula rebus sic stantibus is an instrument of great importance, especially in
the times of a financial crisis, because its purpose is to maintain the proper balance
between principle of pacta sunt servanda on one side with the principle of good
faith and fair dealing and the principle of equal value of performances on the other
side.
M. Bukovac Puvača (*) • G. Mihelčić • I. Tuhtan Grgić

Faculty of Law, University of Rijeka, Rijeka, Croatia
e-mail: bukovac@pravri.hr; gabrijela@pravri.hr; ituhtan@pravri.hr

84 M. Bukovac Puvača et al.
5.1 Introduction
Considering the nature of a financial crisis as a phenomenon (global or local) with

different consequences in different fields of human activity, it is difficult to define it
and discuss it as a unique circumstance that affects a specific contract and leads to
its renegotiation, rescission or revision. There are no special rules on the impact of
financial crises on the contractual obligations of the parties to a contract or the con-
tract itself. A financial crisis, or precisely its consequences, can be considered only
within the framework of the general rule on variation or termination of contracts due
to a change of circumstances, as contained in Article 369/1 of the Civil Obligations
Act (COA).1
Croatian law incorporates the clausula rebus sic stantibus (variation or termina-
tion of contract in case of change of circumstances) as a theoretical concept that
defines the limits of bindings to the contract, matching the principle of pacta sunt
servanda on one side with the principle of good faith and fair dealing and the prin-
ciple of equal value of performances on the other side.2 The proper balance between
those principles actually leads to the modified principle of pacta sunt servanda,
whereby it is no longer important to perform the contract’s obligation exactly as
contracted, but to maintain the contractual relation between the contracting parties,
even by involuntary renewal of the contract.3
The principle of “pacta sunt servanda” is one of the fundamental principles of
Croatian contract law, stated and defined in Article 9 of the COA as follows: “Parties
to obligations shall perform their obligations and they are liable for their perfor-
mance”. A tangible form for this abstract principle is provided in the general rule on
the effects of obligations (Article 65 of the COA). The cited provision stipulates that
pursuant to an obligation the creditor shall be authorised to request performance
from the debtor and the debtor shall be obligated to fulfil the obligation.4 A debtor
shall be liable for performance with all of his assets. In line with the concept of
freedom of contract, parties to contracts can agree upon the ways the obligation can
terminate, other than through performance. Such contracted reasons for possible
termination of obligations are in accordance with the pacta sunt servanda principle
and do not appear as controversial either in theory or in practice.
There is no data on the number of contracts that were subject to renegotiation,
rescission or revision as a consequence of financial crisis. However, there is a
1
Zakon o obveznim odnosima, Narodne novine (Official Gazette of the Republic of Croatia) no.
35/2005, 41/2008 and 125/2011.
2
Petrić (2007), p. 108.
3
Gavella (1965), p. 258.
4
Article 160 of the COA lays down the general rule on the termination of obligations and pre-
scribes the following: An obligation shall be extinguished by mutual consent of the parties to the
obligation, by performance and in other cases prescribed by law. Provisions of Articles 161–194 of
the COA regulate performance of obligations as a common way to terminate the obligation.
Besides through performance, there are other ways to terminate obligations (set/off, release of
debt, merger, impossibility of performance, lapse of time, cancellation and death).
5 Can Financial Crisis Lead to the Application of the Institute of Changed… 85
significant number of cases where contractual parties, motivated by the impacts of

the financial crisis, approached renegotiations. This was particularly evident for the
authorities of local communities that expressed their willingness to reduce rental
fees and claims against debtors, and in some cases even to release the debtors of
their debt.
The contracting parties are bound to take into consideration, with a required
degree of care (of a good merchant or a good master of the house), the possibility of
changes in circumstances and bear the risk of their occurrence. Legal transactions
should correspond to those occasions and circumstances that were considered
essential and served as a motive to the contracting parties to enter into contractual
obligation in the first place.5 However, sometimes, after the conclusion of the con-
tract, circumstances may arise which make the performance of the contract exces-
sively onerous for one contracting party and thus may disturb the principle of equal
value of performances. Insisting on the performance of the contract in instances
when such circumstances arise would be contrary to the principle of good faith and
fair dealing, and therefore unacceptable.6 Precisely those fundamental principles of
civil law raised the need for including the clausula rebus sic stantibus in the Croatian
legal system.
The requirements for termination or modification of the contract are prescribed
in Article 369/1 of the COA, stating that if, after entering into a contract, extraordi-
nary circumstances arise that were impossible to foresee at the time of entering into
a contract, making it excessively onerous for one party to perform its obligations, or
if, under such circumstances, a party would suffer an excessive loss as a result of the
performance, the party may request variation or even termination of the contract.
5.2 Overview of Clausula Rebus Sic Stantibus

in Croatian Law
In the short period between World War II to today the institute of clausula rebus sic
stantibus underwent several changes. In the first period the legal rules of the General
Civil Code (GCC)7 were applied to civil contracts. At that time the possibility of
invoking changed circumstances was not prescribed as a general rule but allowed
5
Vuković (1960), p. 286.
6
Gavella (1965), p. 255.
7
Austrian Civil Code (ABGB) was enforced for the entire territory of the Republic of Croatia (as
it is today) on the 1st of May 1853. After the Croatian-Hungarian Settlement in 1868, ABGB was
not put out of force but reaccepted as Croatian law, as its General Civil Code (GCC). The Code was
applied as such on the territory of today’s Croatia until World War II and, in some parts (if not
contrary to the socialistic regime, as legal rules) even after the War.
only in certain instances,8 and the aggrieved party could not seek the revision of the
contract, only its termination.
The institute of changed circumstances as naturalia negotii was introduced in
Croatian (at that time Yugoslav) law for the first time in the Inheritance Act of 19559
for lifelong support contracts.10 Several years later its application was provided in
the 1954 Trade Usages11 that were applicable only for commercial contracts. Even
though their application was not obligatory, Usages were widely applied to com-
mercial contracts, and the theory of clausula rebus sic stantibus had a significant
role in jurisprudence.12
The principle of variation or termination of contract in case of change of circum-
stances was stipulated for the first time as a general rule for all onerous contracts by
the Civil Obligations Act of 1978 (COA/78). By introducing the institute of clausula
rebus sic stantibus in the COA/78, the Croatian (Yugoslav) legal system adopted a
monistic concept according to which this institute applies not only to commercial
contracts but to civil contracts as well. While the 1954 Usages followed a concept
characteristic of the Italian Codice civile, the rules adopted by the COA/78 were
pointed out in legal theory as being visibly impacted by case law and theories of
German law (lapsed or undermined factual basis of the contract or an extended
interpretation of the notion of force majeure).13
In 2005 the new Civil Obligations Act was adopted and the legislator made cer-
tain changes regarding the institute of clausula rebus sic stantibus, primarily by
simplifying the former rules relating to the prerequisites for the application of the
institute and by amending some details.14
Rules on variation or termination of contract in case of change of circumstances
are prescribed in Articles 369–372 of the COA.
8
It was prescribed in § 901 of the GCC for cases when parties agree on stipulating a purpose of the
contract as its condition, in § 936 of the GCC for preliminary contracts and in § 1048 of the GCC
regulating contracts of exchange of species. See more: Gavella (1965), pp. 256–257.
9
Službeni list FNRJ (Official Gazette of the Federative Peoples’ Republic of Yugoslavia), no.
20/1955 and 12/1965.
10
If after the conclusion of the contract circumstances have changed in such an extent that its per-
formance has become excessively onerous, the court shall, at the request of either contracting
party, modify or terminate their relations, taking into consideration all circumstances.
11
Službeni list FNRJ (Official Gazette of the Federative Peoples’ Republic of Yugoslavia)
(Dodatak - Appendix), no. 15 of 7 April 1954.
12
Blagojević and Krulj (1980), pp. 348–349.
13
Petrić (2007), p. 128.
14
Nikšić (2007), p. 600.
5.3 The Scope of Application
By adopting COA/78,15 clausula rebus sicstantibus became a general institute of

contract law – applicable to all bilateral contracts (both civil and commercial).16
General regulation of the institute is located in the part of the COA covering the
effects of bilateral contracts (Articles 369–372). Due to the positioning of the rules
on variation or termination of contracts in cases of changed circumstances, some
scholars interpret that these rules should apply only to bilateral contracts.17 This
view, that clausula rebus sic stantibus cannot be applied to donation contracts, as a
unilateral contract, was expressed in legal practice as well.18
However, authors in legal theory pointed out that the possible application should
be considered de lege ferenda adequately in other legal transactions (providing a
foothold in comparative law: Italian CC and German BGB).19 If the basic idea of
accepting the changed circumstances rule is deriving from the principle of equal
value of performances, it is clear that there is no place for its application to unilat-
eral legal transactions. However, if the purpose of the institute is to protect the
debtor in cases where the changes would make it excessively onerous for him to
perform, or if under such circumstances he would suffer an excessive loss as a result
of the performance, then its application only to bilateral contracts would be too nar-
row and inequitable. Especially having in mind that while the other party to a bilat-
eral contract (although suffering damages because of the changed circumstances)
would still get some counteraction and has the right to invoke a change in circum-
stances, a party to a unilateral contract would have no right to require anything in
return from the other party and must perform its obligation even though unexpected
circumstances have emerged.20
In part of Croatian legal doctrine the view is expressed that there is no need to
use clausula rebus sic stantibus in relation to unilateral contracts since special rules
15
Official Gazette of the Republic of Croatia, no. 53/91, 73/91, 111/93, 9/94, 7/96, 91/96, 112/99,
88/01.
16
The institute of variation or termination of contract in case of change of circumstances was stipu-
lated for the first time as a general rule for all onerous contracts by the Civil Obligations Act of
1978 (COA/78). Before that time, the legal rules of the General Civil Code (GMC) - § 936 GMC
were applied to civil contracts, while the 1954 Trade Usages were applicable to commercial
contracts.
17
Vizner (1978), pp. 530, 532.
18
Supreme Court of the Republic of Croatia, Rev-2154/86 of 5 May 1987.
19
Slakoper (2005), pp. 433–434, Petrić (2007), pp. 130–131.
20
Petrić (2007), pp. 130–131, Slakoper (2005), p. 433.
prescribed for such contracts take into consideration changed circumstances after
entering into a contract,21 although in a narrower sense than the general rule.22
Clausula rebus sic stantibus is excluded, by the nature of things, from aleatory
contracts. Although the COA does not explicitly mention this exclusion, neverthe-
less, it is clear that the institute of changed circumstances is not applicable since the
court deciding on variation or termination must take into consideration risk distribu-
tion that arises from legislation or contract.23 However, it should be noted that the
application of the clausula rebus sic stantibus was regulated for the first time in the
Inheritance Act of 1955 for lifelong support contracts, which is an aleatory contract.
Lifelong support contracts are now regulated in the COA, and it is explicitly laid
down that the general provisions of the COA governing changes of circumstances
shall apply to them (Article 584 of the COA).
It should be noted that in Croatian law there is no overlapping of the institute of
variation or termination of a contract in case of change of circumstances with the
institute of impossibility of performance (of bilateral contracts) nor with the insti-
tute of excessive loss.
Namely, pursuant to Article 373/1 of the COA, where performance of an obliga-
tion of one party to a bilateral contract becomes impossible due to extraordinary
external events that occurred after entering into a contract and before the perfor-
mance is due and which could not have been foreseen or prevented, avoided or
eliminated by a party to a contract and for which neither of the parties is liable, the
obligation of the other party shall also cease. If the party has performed its obliga-
tion partially, it has the right to restitution according to the regulations relating to
restitution in case of unjust enrichment.24 So, if the performance of one contractual
party’s obligations becomes impossible, the obligation of the other party shall also
cease, provided that neither party is liable and the change of circumstances could
not have been foreseen or prevented, avoided or eliminated.
Furthermore, where performance of an obligation by one party to a bilateral
contract is impossible due to an event for which the other party is liable, the first
party’s obligation shall cease and it shall retain its claim towards the other party.
However, such a claim is reduced by the benefit it might have had from the release
21
Until his obligation of performance becomes due, a donor may withdraw from a contract of
donation, if after concluding such contract his financial standing deteriorated to the extent that
performance of contract would jeopardise his livelihood or prevent him from performing an obli-
gation of maintenance (Article 492 of the COA). A donor whose financial standing after perfor-
mance of the contract of donation deteriorates to the extent that he lacks funds for his immediate
support, and there is no person legally obligated to support him, may revoke the donation and
request the donee to return the gift (Article 493/1 of the COA).
22
Nikšić (2007), p. 573.
23
Petrić (2007), p. 133.
24
In the case of partial impossibility of performance of one party due to an event for which neither
of the parties is liable, the other party may terminate the contract if partial performance does not
meet its needs; otherwise the contract shall remain valid and the other party shall be entitled to
request proportional reduction of its obligation (Article 373/2 of the COA).
from its own obligation (Article 374/1 of the COA). In such cases a new relationship
arises – liability for damage.
It is important to emphasize that the impossibility of performance has to be
supervening i.e. has to occur “…after entering into a contract and before the perfor-
mance is due…” (Article 373/1 of the COA). If the impossibility of performance
existed at the time of the conclusion of the contract, the contract would be invalid.
A distinction should be underlined in relation to the institute of excessive loss as
well. Namely, contracting parties may not invoke changed circumstances where an
evident imbalance of mutual performances existed at the time of entering into the
contract. The harmed party in such a case may request annulment of the contract,
provided that at the time of conclusion of the contract they did not know nor had any
reason to know of the true value of their obligations (Article 375 of the COA).
5.4 Legal Nature of the Provisions on Clasula Rebus Sic

Stantibus
According to Article 372 of the COA, parties may waive in advance their right to
invoke certain changed circumstances, unless such an agreement would be contrary
to the principles of good faith and fair dealing. From the cited provision it seems
that clausula rebus sic stantibus is naturalia negotii of every bilateral contract.
However, the freedom of contract principle regarding the possibility to agree upon
the use of the institute of variation or termination of the contract in case of changed
circumstances is restricted in two directions. Firstly, renunciation may not be agreed
upon contrary to the principles of good faith and fair dealing. Under the assumption
that there was no breach of the principles of good faith and fair dealing, the parties
would be allowed to contract beforehand their renunciation to invoke clausula rebus
sic stantibus for defined circumstances. By allowing the renunciation to invoke
clausula rebus sic stantibus for defined circumstances, the legislator has prevented
the contracting parties from precluding the application of the institute of clausula
rebus sic stantibus as such with respect to all possible changed circumstances,25
because such an agreement would be contrary to the principle of good faith and fair
dealing.26 The cited opinion was stated in the judgment of the Supreme Commercial
Court in 1963, even before limits to the freedom of waiver were introduced.27 The
above restrictions on renunciation to invoke clausula rebus sic stantibus are ius
25
Petrić (2007), p. 133, Nikšić (2007), pp. 578–579, Slakoper (2005), p. 432, Vizner (1978), p. 539.
26
Petrić (2007), p. 133.
27
Supreme Commercial Court, Sl-2244/63 of 26 of December 1963. It is to be stressed that the
above judgment was criticised by legal scholars, pleading for greater freedom of contracting par-
ties. Goldštajn (1980), p. 183.
cogens – prescribed in order to protect public order.28 Therefore, those renunciations

made contrary to the principles of good faith and fair dealing, as well as those made
with respect to all possible changed circumstances, would be null and the renounc-
ing party would be able to invoke changed circumstances. On the other hand, by
waiving the right to invoke specific changed circumstances, the liability of the
debtor is extended by contract to cover cases for which it would not be liable other-
wise, which is in accordance with Article 344 of the COA.
In conclusion, the rules regulating clausula rebus sic stantibus will be applied
when contracting parties did not agree to waive the right to invoke certain changed
circumstances, as well as in cases where they agreed upon the waiver, but the waiver
encompassed either all possible changed circumstances or defined circumstances
that were contrary to the principles of good faith and fair dealing.
5.5 Requirements for Termination or Modification
Requirements for the termination or modification of a contract are prescribed in

Article 369/1 of the COA. This article states that if, after entering into a contract,
extraordinary circumstances arise that were impossible to foresee at the time of
entering into a contract, which make it excessively onerous for one party to perform
or if, under such circumstances, a party would suffer an excessive loss as a result of
the performance, that party may request variation or even termination of the
contract.
5.5.1 Change of Circumstances (Extraordinary

and Unforeseen)
Circumstances under which the contractual party could seek variation or termina-
tion of the contract were enumerated, by way of example in Usage No. 56: natural
disasters, such as drought, flood, earthquake; administrative measures such as the
prohibition or restriction of imports or exports; and other restrictions of trade,
changes in the system of prices, tariff changes and administered prices, changes in
standards, and economic changes such as an extremely large and sudden fall or
jump in prices. The rules of COA/78 and COA do not contain a list of circumstances
that may affect the contract. It was stressed in legal literature that there was no need
to regulate them, since it is not important which circumstances have changed
but rather whether they have influenced the contracting parties, contractual
28
Slakoper (2005), p. 432. Ratio of the prohibition of the general waiver to invoke on changed
circumstances was in the need to protect general interests and ‘the morale of the socialistic self-
governing society’ Blagojević and Krulj (1980), p. 355.
obligations and their performance.29 However, legal scholars, obviously inspired by

the cited Usages, retained the classification to natural events, political and social
changes, administrative and other measures of government, economic phenomena,
etc.30
It is indisputable that financial crises should be classified as economic phenom-
ena. However, contracting parties may invoke a financial crisis as a changed circum-
stance only if all statutory requirements (which will be described below) are
fulfilled. It is to be noted that a financial crisis will prove its specificity relative to
each requirement (questions will be raised as to the timing of the emergence of the
crisis, predictability of its duration, intensity and its consequences).
For the application of clausula rebus sic stantibus it is required that the “extraor-
dinary circumstances that arise were impossible to foresee.” By such stipulation,
provisions of the 2005 COA (Article 369/1) returned to the prerequisite as stated by
the 1954 Trade Usages (Usage No. 55.). According to the COA/1978 the “emer-
gence of circumstances” was required (Article 131/1).
A comparison of rules of the 1954 Trade Usages with rules and regulations of the
COA/78 makes it evident that the rules of the COA/78 dropped the requirement that
the circumstances must be “unforeseen and extraordinary”. Since objective “unfore-
seeability” (as there are very few examples of objective unforeseeability) would
significantly reduce the ability to apply this rule, the requirement for unforeseen
circumstances was criticised in legal theory as inadequate.31 It was pointed out that
foreseeability had to be comprehended ‘in a practical, and not philosophical
meaning’.32 However, as the termination of the contract could not be invoked by a
party that was obliged to take into consideration the circumstances at the time of
entering into the contract, or could have avoided or overcome them, thus “unfore-
seen” circumstances were required in COA/78 indirectly. Jurisprudence and legal
theory were concordant in this regard.33 Because of the aforementioned, the return
to the requirement of unforeseen and extraordinary circumstances (which may seem
as a more restrictive solution than the one of COA/78) is not a radical change and it
is not to be expected that there will be a change in jurisprudence. Apart from the
re-introduction of the requirements for change of circumstances, the legislator
retained the provision of the COA/78 according to which variation or termination of
a contract may not be requested by a contracting party invoking the change of cir-
cumstances if that party was obliged to take into consideration such circumstances
at the time of entering into a contract or if it could have avoided or overcome them
(Article 369/2 of the COA). Accordingly, (un)foreseeability is estimated taking into
consideration not only the objective circumstances, but also the subjective features
of the party (“bound to take into consideration”). The degree of care is assessed in
relation to the area in which the contract is concluded (commercial or civil con-
29
Slakoper (2005), p. 434.
30
Petrić (2007), p. 134.
31
Blagojević and Krulj (1980), p. 351.
32
Goldštajn (1980), p. 184.
33
Slakoper (2005), pp. 436–438, Petrić (2007), pp. 138–141.
tracts) and the properties of the parties (good merchant or a good master of the
house). Thus the Supreme Court’s decision Rev-2521/1995-2 of February 7 1996
expressed the view that banks must take measures to preserve the value of money
(e.g. by contracting variable interest rates).
The emphasis is on the alteration of circumstances that existed (or were reason-
ably expected) at the time of the conclusion of the contract, and not on the event that
caused them.34 Moreover, the institute could be applied even in cases where the
event expected in the regular course of events did not occur.35 Certainly, every
change in the value of performance does not give a right to request variation and
termination of the contract. If the constant change in the value of money – goods/
services, would allow their modification or termination in the moment when they
are due, that could lead to abandoning the principle of nominal value in favour of
adjusted value.36 Jurisprudence has often repeated the view that the loss of value of
money does not meet the requirements of the changed circumstances rule, if the
contract was concluded at the time of inflation, because this represents a fact that the
parties must take into consideration (for example, the Supreme Court: Rev-
2899/91-2 of March 18 1992, Rev-1231/92 of 2 September 1992, Rev-1656/99-2 of
March 9 2000).
A party may invoke extraordinary circumstances if they are of such nature that
the party cannot overcome or avoid their impact. Although these elements are usu-
ally included in the definition of force majeure, the main difference is that this
extraordinary and unforeseen event does not have to be external, so there is an obvi-
ous omission of an essential characteristic of force majeure.37
As already stated, there are no special rules on the influence of a financial crisis
on the contractual obligations and the contract itself. However, it is clear that it
should be of a certain intensity and a certain grade of unpredictability to be qualified
as a circumstance which a party may invoke when requesting modification or termi-
nation of a contract. The notion of the term unpredictability shows its problematic
nature especially in regard to a financial crisis as a changing circumstance. We are
witnessing a financial crisis whose proportions were not predicted to such an extent
even by the greatest experts. Thus, the question is what shall the court consider that
the contracting parties were bound to take into consideration.
5.5.2 Time of the Arisen Alteration
Regardless the fact that the circumstances may be qualified as extraordinary and
unforeseen, the right to require variation or termination of contract will ensue only
if all provided prerequisites are fulfilled.
34
Petrić (2007), p. 141.
35
Petrić (2007), p. 134.
36
Nikšić (2007), p. 584.
37
Petrić (2007), p. 142.
A further prerequisite that must be fulfilled refers to the time of the occurrence
of the circumstances. The arising of the alteration of circumstances has to be
subsequent, i.e. they have to arise after entering into the contract (Article 369/1 of
the COA). A financial crisis is not a circumstance which occurs at an exact point. It
is a complex process whose beginning and end is difficult to determine. If a finan-
cial crisis would be taken as a changing circumstance then contracting parties of all
contracts concluded after its appearance could not invoke changing circumstances.
Therefore, the time of the occurrence of the financial crisis is not important but
rather the time of the occurrence of its consequence which caused the alteration of
circumstances.
If, at the time of entering into a contract, there was an evident imbalance between
the performances of the contracting parties, the harmed party would be able to
request an annulment of the contract, provided that at that time it did not know or
had no reason to know of its true value (Article 375/1 of the COA).
Furthermore, the party requesting variation or termination of the contract may
not invoke a change of circumstances that occurred after the expiry of the time limit
for performance of the obligation (Article 369/3 of the COA).
Accordingly, changes in circumstances must occur after entering into a contract
and before the performance is due. There are numerous court decisions rejecting the
plaintiff’s claims for breach of contract, because the change of circumstances
occurred after the debtor defaulted on its obligation (after the claim was due). After
the performance, the right to request variation or termination of the contract in case
of change of circumstances ceases.
5.5.3 Excessive Onerousness or Excessive Loss
The following prerequisite, prescribed by the same article (369/1 of the COA)
entails that the performance of the obligation would be ‘excessively onerous for one
party or if under such circumstances a party would suffer an excessive loss’. Such
formulation was prescribed by the rules of the 1954 Trade Usages. According to
COA/78 it was required that altered circumstances made performance ‘onerous for
one party to perform’. Hence, the rules of COA/78 required only ‘onerous’, not
‘excessively onerous’ performance and ‘party who would suffer an excessive loss’
was omitted. The legal solution from Usages and COA provides a wider possibility
to invoke altered circumstances, by allowing it not only to the debtor, but also to the
creditor.38
Excessive onerousness has to be observed and evaluated in relation to a respec-
tive legal transaction, sometimes even in relation to a particular stage of perfor-
mance in the case of complex contractual relationships.39
38
Nikšić (2007), p. 590.
39
Nikšić (2007), p. 591.
5.5.4 Circumstances Relevant for Judicial Decision
According to Article 371 of the COA, in deciding on variation or termination of a

contract, the court shall be governed by the principles of good faith and fair dealing,
taking into consideration the purpose of the contract, the allocation of risk resulting
from the contract or from laws, the duration and effects of extraordinary circum-
stances and the interests of both parties.
It is pointed out by legal scholars that it is clear that the stated article does not
prescribe special requirements that would affect the occurrence of the right of the
aggrieved party to seek alteration or termination of the contract in case of a change
of circumstances, since those requirements are prescribed in Article 369 of the
COA. However, they are of great importance since the courts should be governed by
the principle of good faith and fair dealing and should take into consideration cited
circumstances when deciding on revision or termination of the contract.40
The need to distinguish the phrases ‘courts should be governed’ and ‘courts
should take into consideration’ is emphasised in legal theory. Namely, the advan-
tage should be given to what the courts are governed by, as a basic criterion, through
which everything that needs to be taken into consideration should be observed.41
Accordingly, the circumstances that should be taken into consideration – the pur-
pose of the contract, the allocation of risk resulting from the contract or from laws,
the duration and effects of extraordinary circumstances and the interests of both
parties – may be considered relevant only if they are in accordance with the princi-
ples of good faith and fair dealing as the fundamental criteria by which the courts
should be governed when deciding.
5.5.4.1 Frustration of Contract’s Purpose
The frustration of the contract’s purpose is not a requirement for variation or termi-
nation of the contract due to changed circumstances, as it was according to Article
132/1 of the COA/78. Even though frustration of the purpose of the contract is no
longer stated as a special requirement, it is still a very important circumstance which
the court shall take into consideration when deciding on the variation or termination
of the contract due to change of circumstances.
Jurisprudence often dealt with the problem of frustration of the contract’s pur-
pose during the application of the COA/78. Case law holds that the frustration of
purpose after the performance of the obligation is not relevant. There was a series of
disputes in which defendants were calling upon the frustration of purpose of the
contract after the decision of the authorities on the withdrawal and cancellation of
bonds of a bank. When deciding on the referred disputes the Supreme Court held
that the purpose of the contract was the acquisition of ownership rights on the
40
Gorenc (2005), p. 563.
41
Gorenc (2005), p. 563.
stocks. Hence, the purpose had been realized, irrespective of the subsequent loss of
the stocks.42 However, legal scholars warned that the purpose of the contract is not
only the objectified purpose (always the same for the same type of contract), but the
contract may lose its purpose when the economic purpose for which the contract
was concluded cannot be achieved.43
When a contract’s purpose ceases, its modification or termination should not be
observed as an exception to the principle of pacta sunt servanda, but as its amend-
ment, deriving from the essence of the contract – the will of the contracting
parties.44
5.5.4.2 Allocation of Risk
At the time of conclusion of a certain type of contract and with a certain party, each
contracting party assumes certain risks arising from that relationship, stated either
in the contract or by law. Normal, usual risks, accompanying the particular contrac-
tual relation have to be borne by the contractual parties themselves. Risk diversifica-
tion may, in regard to the alteration of circumstances in a particular contractual
relation, fall on one or both contracting parties, partially or wholly.
5.5.4.3 Duration and Effects of Extraordinary Circumstances
The court shall also take into consideration the duration and effects of extraordinary
circumstances when deciding on a particular case. Courts are given the ability to
(taking into consideration all other factors as well) change the terms of performance
in cases where the change of circumstances is of temporary nature and would cause
excessive oneroussness or excessive loss only if the performance is completed at the
contracted time of performance.
5.5.4.4 Interests of Both Parties
Taking into consideration the interests of both parties means that the court should
take into account not only the fact that the performance of the obligation would be
excessively onerous for one party or that under such circumstances a party would
suffer an excessive loss, but also that in the event of termination of the contract the
other party would suffer some loss. The court’s decision should be such that the
losses on both sides are reduced to a minimum.
42
For the case law see: Nikšić (2007), pp. 592–593.
43
Nikšić (2007), pp. 593–594.
44
Goldštajn (1980), pp. 183, 186.
Taking into consideration all of these circumstances, the court should seek pri-
marily to modify a contract equitably, and only if that is not possible, to terminate
it.45
5.5.4.5 Equity
Equity as a requirement for the variation or termination of the contract due to change
of circumstances was laid out in COA/78 (Article 133/1); the application of the
clausula rebus sic stantibus was possible only if the contract, according to general
opinion, would have been inequitable to keep in force. In the positive Croatian law
equity is not a prerequisite for the application of the institute of clausula rebus sic
stantibus anymore, but it is not completely abandoned either. Equity should be esti-
mated within the court’s decision on the ‘equitable change in the relevant provisions
of the contract’ when the other contracting party offers or agrees upon it (Article
369/4 of the COA) as well as in the case where a court declares termination of a
contract and, at the request of the other party, obliges the party applying for the
termination to compensate the other party with an equitable amount for the damage
suffered due to the termination (Article 369/5 of the COA).
5.6 Termination or Modification of the Contract
In the event the requirements prescribed for variation or termination of the contract
due to change of circumstances are fulfilled, de rerum natura, the right to seek
variation or termination of the contract ensues.
The right of the aggrieved party to seek variation or termination of the contract
was historically regulated in a different manner. According to the rules of the 1954
Trade Usages affected parties had the right to require ‘…variation or even termina-
tion of the contract.’
The rules of the COA/78 gave the aggrieved party the right to seek termination
of the contract. At the same time the law prescribed that the contract will not be
terminated if the other party offers or agrees to amend the contract. Affected parties
could not, pursuant to COA/78, require variation, but only its termination.
The rule stated in Article 369/1 of the COA contains the same rule as 1954 Trade
Usages. Aggrieved parties may request ‘variation or even termination of the con-
tract.’ It is considered that this rule should be interpreted so as to give priority to
modification of the contract over its termination.
However, when observed within the context of Article 369/4 COA, according to
which the contract shall not be terminated if the other contracting party offers or
agrees to an equitable change to the relevant provisions of the contract, it could be
argued that such a strict order of priority does not exist. Namely, it raises the question
45
Gorenc (2005), p. 564.
as to why the other contracting party would have the right to offer or agree to a fair
change in the relevant provisions of the contract, if the affected party must first seek
variation of the contract, and only secondly its termination.
The opinion that the rule of Article 369/4 of the COA is redundant and that prior-
ity should be given to contract modification over its termination was expressed in
legal theory.46 Such concept is consistent with the fundamental principles of con-
tract law as well as with the purpose and nature of the institute.
It is important to note that the law prescribes a duty to the aggrieved party to
inform the other side of the changed circumstances and its intent to require variation
or termination of the contract. If the aggrieved party omits to inform, it will be liable
for damages caused to the other party due to not being informed on time. However,
by failing to inform its counterparty the aggrieved party does not lose its rights aris-
ing from the institute clausula rebus sic stantibus. Liability for damages, caused by
the failure to inform, does not affect the right to alter or terminate the contract in
case of a change of circumstances.
The contracting parties may, in the event that they have acquired the prerequi-
sites for variation or termination of the contract in case of change of circumstances,
subsequently, after the occurrence of changed circumstances, enter into an agree-
ment that will alter their relationship (for example, novation). When the parties do
reach such an agreement, the institute clausula rebus sic stantibus will not be appli-
cable. The institute of clausula rebus sic stantibus will also not be applicable in the
cases where performance is affected, since then the right to seek variation or termi-
nation of the contract ceases.47
To conclude, when deciding on a request for modification or termination of a
contract, the court’s decision shall be governed by the principles of good faith and
fair dealing, taking into consideration the purpose of the contract, the allocation of
risk resulting from the contract or from laws, the duration and effects of extraordi-
nary circumstances and the interests of both parties (Article 371 of the COA).When
a court declares termination of a contract it shall, at the request of the other party,
oblige the party applying for the termination to compensate the other party with an
equitable amount for the damage suffered due to the termination (Article 369/5 of
the COA). The question regarding the determination of the amount of compensation
for damage goes beyond the scope of this paper, but it is to be stressed that when
deciding on the ‘equitable amount’ the court’s decision should be governed by the
same principles and taking into consideration the same occasions as when deciding
on modification or termination of a contract.
46
Petrić (2007), pp. 148–149, Slakoper (2005), p. 442.
47
Nikšić (2007), p. 586.
5.7 Conclusion
The impact of the financial crisis on renegotiation, rescission and revision of the
contract under Croatian law may be observed only through the application of the
rules on variation or termination of contract in case of change of circumstances
(clausula rebus sic stantibus). This institute was regulated in different manners. By
the latest statutory changes the institute is regulated along the lines of the Usages of
Trade of Goods of 1954. The main difference (and indeed the only one that will,
undoubtedly, result in a change in judicial practice) lays in the provision on revision
or termination of the contract as the consequence of changing circumstances,
whereby preference is given to the contract’s revision. Thus, for example, the frus-
tration of the contract’s purpose and equity were previously prescribed as require-
ments for ensuing the right to require variation or termination of the contract, while
in the positive Croatian law they are only circumstances relevant for judicial
decision.
A financial crisis could (according to the old and positive law) lead to the appli-
cation of the institute of changed circumstances. Of course, due to the nature of the
financial crisis as a complex process, without a specified time of occurrence and
cessation, the court shall estimate, in each case, whether it has occurred after the
conclusion of the contract, and if not, whether the contracting parties could have
foreseen its consequences, intensity and scope, if they were acting with due dili-
gence. The court shall actually assess, in each particular case, according to pre-
scribed criteria, whether the certain consequence of the financial crisis (and not the
financial crisis itself) may be estimated as an event which caused changes of cir-
cumstances. Neither the crisis itself nor its consequences will always create the
right to invoke on changed circumstances, but in the case where this right ensues the
modification or termination of the contract is in a line with the main principles of
contract law.
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(Clausula Rebus sic Stantibus in Present Law and in Draft Law on Obligations). Zbornik
Pravnog fakulteta u Rijeci 26(1): 429–452.
Vizner, B. 1978. Komentar Zakona o obveznim odnosima (Commnentary on the Law on
Obligations). Zagreb: Riječka tiskara.
Vuković, M. 1960. Opći dio građanskog prava (General Part of Civil Law) Book II. Zagreb:
Školska knjiga.
Chapter 6
Elimination of the Impacts of Financial Crisis
on Legal Relationships According to Czech
Private Law
Marketa Selucká
Abstract The growing interconnectedness of global economies helped to spread

the effects of the financial crisis to many different areas of human life. Among many
other things, it also effected the civil law relationships. In this paper, the author
introduced several areas of Czech civil law which had to reflect the circumstances
brought about by the financial crisis. This paper investigates the “change of circum-
stances” which may lead to termination or alteration of an existing legal relationship
according to Czech law. Considering the possibilities that law offers to the contrac-
tual parties heavily affected by financial crisis, the author reminds us that the effects
of financial crisis on private-law relationships should be considered especially with
solidarity in mind.
6.1 Introduction
Financial crises appear from time to time during the course of life of society.
Although men have achieved great knowledge of economics, law or sociology, no
man is able to foresee such a crisis or to be more precise no man is able to avoid it
despite many expensive economic tools whose purpose is to enhance economies.
The financial crisis which started in 2008, based on the American subprime mort-
gage crisis of 2007, may be one of the examples and proofs showing validity of the
abovementioned premise. Global economy is so intertwined that a financial crisis of
one market brings about a chain reaction. Hence it may be said that financial crises
are a dangerous phenomenon in society and normative system should consider them
and try to eliminate their impacts on legal relationships.
Economic crises or crises of smooth functioning of economy are a common
“unpleasant” and unwanted part of the development of economy. As opposed to
economics, whose purpose is to research the course and functioning of society and
M. Selucká (*)
Faculty of Law, Masaryk University, Brno, Czech Republic
e-mail: marketa.selucka@law.muni.cz

102 M. Selucká
its relationship with economy, the primary purpose of law, as a normative system, is
not to deal with economic crises. However, the legal order may help to eliminate
economic crises by setting fair rules of how individuals and entities being active on
financial markets shall behave and generally set proper square rules of how busi-
nesses should conduct.
Hence, law sets the general rules which shall be followed while being active on
the markets. These laws may then be defined as public-law regulation of businesses
on the markets. Law, however, also introduces general private-law rules. It offers
rules for the general private-law relationships and it should include balanced model
solutions which ensure that the stronger party will not be able to misuse its power to
disadvantage the weaker party (Inde datae leges, ne firmior omnia posset. Ovidius,
Fast. III, 279), i.e. the stronger party shall not transfer its loss arising from the finan-
cial crisis to a weaker party.
As for the financial crises, law should set the general principles of behavior
which shall prevent such financial crises, i.e. law should set fair and proper rules of
behavior guaranteeing that any speculative or improper deeds and acts of the market
participants be prosecuted if not considered to comply with law. The purpose and
goal of these rules would be to prevent certain behavior, whether the rules are set by
public-law norms or private-law norms. Aside from that law should offer model
solutions and rules for such cases when the preventive rules fail to achieve their
goal, i.e. certain crises occur as a result of a phenomenon independent of human will
despite full compliance with the preventive laws.
In such cases, the risks, i.e. the impact of a financial crisis on society, should be
fairly distributed so that society would “survive” such a financial crisis. The desired
solution should ensure that an individual would be protected against any attempts of
the more powerful and rich to “transfer” the impacts of the financial crisis on the
poorest and weakest members of the respective society. The issue of balancing and
distributing risks of the potential crises and their impacts on legal relationships may
be primarily political, for the crucial question is who to protect: employment and
the growth of GDP, i.e. preferring “survival” of businesses and large corporations or
protecting individuals from transfers of the losses coming from the financial crises
on them? It may happen that in global economy with many transnational corpora-
tions a man, as an individual human being, is “sacrificed” although the democratic
principles on which the European and American culture is based, are not grounded
on high GDP and the overall welfare of society measured by economic indicators,
but rather on freedom of individuals and respect of man to one another. The goal is
not “welfare” of society as an imaginary magnitude, but it is only a “mere side prod-
uct”. The goal is an individual, each and every human being. On the other hand, if
the employers do not survive, individuals will not survive as well as they depend as
employees upon their employers. These phenomena are thus inextricably inter-
twined. Therefore we need to consider a balanced division of risks between the
particular participants in the legal relationships in society.
Although law, as a normative system, cannot eliminate economic crises, it may
set rules helping to prevent the crises by, for example, fair behavior of those being
6 Elimination of the Impacts of Financial Crisis on Legal Relationships According… 103
active on the markets, and it may also establish rules in such a way that the impacts
of crises did not interfere the legal relationships crucially, i.e. so that society would
“survive as a whole”. Nevertheless, society may only survive as a whole if an indi-
vidual, as a basic stone of society, survives. It is probable that private-law norms
will have to be combined with the public-law norms. This could be done for instance
on the principle of solidarity with an effective social system which would ensure
that an individual affected by a crisis, e.g. an individual who has lost his job, would
not have to face an existential issue, i.e. he would not starve to death. It is necessary
to set such rules that an individual or a weaker party would not compensate a loss or
the powerful ones. In other words it means that the consequences of financial crises
should not be born only by the middle class, but also by the richest members of
society. A wise lawgiver should know the historical fact that a lack of the middle
class brings about a potential revolution, instability and radical changes having fatal
consequences for the whole society. To name a few, it could lead to a complete per-
ishing of middle class, but also disappearance of the richest class and occurrence of
the power of “rabble”. Therefore we may conclude that a balanced division of the
risks of financial crisis among all the members of society supports the idea of demo-
cratic society. Aside from that we should mention that placing risks only on the
middle class or the weaker individuals in society in not acceptable even from the
moral point of view.
6.2 Legal Phenomena Arising Out of the Financial Crisis
Generally, we may say that the purpose and goal of a contract is proper settling of
the debt (fulfillment of an obligation). However if there are certain legal circum-
stances connected with financial crisis which have an impact on a proper fulfilment
of an obligation, it may happen that an obligation does not terminate by a proper
settlement of a debt. The contractual parties have several ways how to solve such a
situation, e.g. raising the costs, not settling debt on time, etc. The first solution is a
change of obligation due to the new situation arising out of the economic crisis.
Such a change may take place based on a voluntary decision of the parties, i.e. based
on an agreement whether it is a so-called cumulative novation or the legal institute
clausula rebus sic stantibus, i.e. the parties agreed on change of an obligation. The
advantage of using the institute clausula rebus sic stantibus is that if the negotiations
about novation fail, a court would be entitled to step in and set the rights and obliga-
tions of the particular parties in a fair and balanced way.
The worst case is that an obligation is not fulfilled at all, i.e. the purpose and goal
of an obligation was not met. This is of course connected with certain responsibility,
e.g. consequences arising out of default. An obligation may be also terminated by
using the institute clausula rebus sic stantibus or an obligation may be terminated if
it is no longer possible to fulfill an obligation.
104 M. Selucká
6.3 A Change of an Obligation Based on an Agreement

of the Parties: Cumulative Novation
It is a general rule that an obligation may only be changed based on an agreement

of the parties or if a law prescribes so. In the Czech private law, we can find certain
provisions regulating a change in legal acts (the Section 564), change of a contract
and change of the content of an obligation (the Section 1902). Some of the provi-
sions of the new Civil Code regulating these situations often apply to the “same
thing” or they sometime even contradict one another, which brings many problems.
Nevertheless, in real life, it is only up to the will of the parties whether they want to
alter their rights and obligations in order to take account of the effects of a financial
crisis on them or not.
Overall, Czech private law prescribes that a change of an obligation may only be
carried out in the same form which is required for a contract itself. If this condition
is not met, such a change of an obligation will be considered invalid. The Civil Code
of 1964 stated that non-complying with the form prescribed by law means that the
contract is “absolutely invalid”, e.g. if there was prescribed that a certain type of a
contract has to be done in writing, but it was only concluded verbally. On the other
hand, the new Civil Code is more benevolent to failing to comply with the pre-
scribed form. The new Civil Code states that such contracts shall be only “relatively
invalid”, i.e. the entitled party has to claim within 3 years that a contract is invalid.
However, we should mention that also the Civil Code stated that if a form or a con-
tract was set by an agreement by the parties, i.e. not by a statute, non-compliance
with the form brought only “relative invalidity”.
The parties may agree on a provision which shall eliminate the effects of extraor-
dinary circumstances on fulfillment of an obligation, or to be more precise, a provi-
sion which shall eliminate disproportion or “subjective impossibility” to fulfill an
obligation. For instance, we may mention the traditional price clauses or inflation
clauses, but also certain clauses of other type, usually based the object of the
contract.
6.4 Cumulative Novation: Contractual Provision Allowing

Unilateral Change of Rights and Obligations
of the Parties
There are, however, certain provision that may be rather understood as debatable.
These provisions allow that one of the parties one-sidedly changes the rights and
obligations of both of the contractual parties without an explicit approval of the
other party. These provisions may not be a priori looked on as banned, but all cir-
cumstances of the respective case should be taken into consideration while dealing
with such provisions, as such a provision or its morality should be considered with
respect to the nature of the object of the contract, i.e. with regard to controllability,
definiteness, foreseeability, etc. of the object of the contract. It should be definitely

taken into consideration whether the one-sided change of an obligation or of a con-
tract regards B2B or B2C relationships. In any case, such a provision has to be
moral, i.e. it may not be contra bonos mores, which means that it cannot be charac-
terized as misusing or disproportionate.
The concept of a “misusing clause” is treated differently in B2B and B2C rela-
tionships, for the consumer relationships are considered with respect to the protec-
tion of a consumer in the light of the Directive 93/13/EEC on unfair terms in
consumer contracts and the interpretation thereof which is based on the decisions of
CJEU/ECJ.1 A consumer should be given at least a right to withdraw from a contract
without any punishment, i.e. if the business one-sidedly changed the obligations of
the consumer, the consumer shall be granted a right to terminate the relationship
between him and the business without being punished for such a decision, e.g. by
penalties, interest for the entire period of an originally agreed loan, etc.
The Czech courts, e.g. the Supreme Court decision No 21 Cdo 5205/2007 of
December 8, 2009,2 for instance had to deal with a “Contract on supply of heat” of
July 12, 2001 was agreed that “the supplier has a right to change the contract based
on a changes of the input energy by an algorithm of prices and changes at the cus-
tomer found by a control and in accordance with the assessment of the Ministry of
Finance of the Czech Republic.” During the proceedings, the plaintiff, referring to a
decision by the Ministry of Finance and the Energetic Regulation Office, requested
that the defendant shall pay an one-sidedly increased price for supply of heat. In the
contract, there was also stated that “a notice for termination of a heating season and
the notice itself has to be delivered by December 15 of the preceding year”, but this
provision, as it was correctly pointed out by the appellate court, would make it
impossible for the customer (the defendant) to give a notice in the time when he is
receiving the supplies and is required to pay the increased price. In this situation, the
court ruled that the contractual provision on the supplier’s right to one-sidedly
increase the price that had been originally agreed upon in the contract is not valid.
If the price was increased as a result of a material regulation of prices by a respec-
tive body, such a provision is invalid because it contradicts the Section 7 of the Act
on Prices, it only allows a contractual increase of prices. If the price increase was
made without an influence of a material regulation of prices by a respective body,
such a provision is then invalid, for it contradicts the provision of the Section 56
para 3 letter i) of the Civil Code, which states that such a provision may only be
upheld if the consumer (customer) is granted a right to withdraw from the contract
(in this case, the consumer was not granted the right to withdraw; withdrawal
1
Decision of the ECJ, of March 21, 2013, RWE Vertrieb AG proti Verbraucherzentrale Nordrhein-
Westfalen eV., C-92/11 or the decision of ECJ of April 26, 2012, Nemzeti Fogyasztóvédelmi
Hatóság v. Invitel Távközlési Zrt., C-472/10.
2
The decision of the Supreme Court No 21 Cdo 5205/2007 of December 8, 2009, available: www.
nsoud.cz; http://www.nsoud.cz/Judikatura/judikatura_ns.nsf/WebSearch/EFA70C129418AC1AC
1257A4E0065BC95?openDocument&Highlight=0,21,cdo,5205/2007.
106 M. Selucká
according to the Section 7 of the Act on Prices applies only to cases of material
regulation of prices by the respective body).
As for B2B relationships, if one of the parties were allowed to transfer due to a
unilateral recognition of rights and obligations the entire risk of its business to the
other contractual party, it would have to be considered whether such a provision
does not contradict good manners or an honest business interaction. The question of
a fair division of risk between the two contractual parties is of course a crucial ques-
tion and morality or immorality of such provisions has to be considered by the
general courts in light of many circumstances connected with the respective con-
tractual relationship.
6.5 A Change of an Obligation: A Change of Circumstances

(clausula rebus sic stantibus)
The Czech Civil Code, which had been in force till December 31, 2013, did not
recognize the concept clausula rebus sic stantibus, or to be more precise, the change
of circumstances was taken into account only as for pactum de contrahendo (an
agreement to conclude a contract in the future) or in other very specific cases. The
principle had not been recognized as a general concept of law of contract law
although the “large amendment” to the Civil Code passed in 1991 (the Act No
509/1991), which entered into force on January 1, 1992, restored the traditional
private-law institutes which are common throughout Europe. It should be men-
tioned that the former totalitarian private law did not recognize, for example, the
concept of lease, as it rather preferred the concept of “usage”; it was only the state
that was allowed to own things and the state was entitled to grant its citizens the
right to “permanent usage” of certain things, e.g. real estate. On the other side, it
should be made clear that the concept clausula rebus sic stantibus is not accepted
throughout Europe without any objections. Despite the fact that the German legal
doctrine has shaped this concept to “almost perfection”, for example French law is
not very open to this concept.
In the Czech legal doctrine, there are some who claim that although private law
did not recognize a general institute considering a change of circumstances by the
abovementioned amendment, it was possible to follow the pre-war legal doctrine
and court decisions.3 Before the World War II, the Czech legal tradition derived the
general concept of clausula rebus sic stantibus from the Section 936 ABGB; this
provision however applied stricto senzu only to pactum de contrahendo, i.e. not all
the situations arising out of change of circumstances. Thus the opinions that there
was “clausula rebus sic stantibus immanently existed” in the Czech private law
within the context of the literature and judicial decision from the era of the
Czechoslovakian First republic were legitimate. For instance, the Supreme Court
3
Eliáš (2009).
ruled that “the ‘rebus sic stantibus’ clause is important not only for the prior agree-
ment, but for the contracts in general. Its effects do not necessarily depend on the
right to terminate the contract, but it may also be manifested in establishing an
economic and harmony between consideration and fulfillment” (Vážný No 1680
Supreme Court decision NS ČSR of May 17, 1922, No Rv I 407/22). Another deci-
sion of the Supreme Court reads: “the principle ‘rebus sic stantibus’ set forth in the
Section 936 of the Civil Code applies also to the definitive contracts, especially to
repeating mutual considerations for the future, in which there would be an extreme
disproportion between the considerations of the parties” (Vážný No 17516.
Supreme Court decision NS ČSR of December 15, 1939, No Rv I 612/39).
The new Civil Code4 introduced several provisions which generally consider the
significant change of circumstances (not only as for pactum de contrahendo), as is
it influenced by the UNIDROIT Principles of International Commercial Contracts.
Although the general motive and the model solutions corresponds with UNIDROIT
(the Art. 6.2.1 through 6.2.3), certain minor changes and deviations may be found
in Czech law. The explanatory report to NCC openly admits the inspiration be the
abovementioned source.5 As for interpretation of the Sec. 1765–1766, it may be
expected that the Czech general courts will take account of the model solutions and
the theoretical arguments of legal doctrine presented in connection with PECL,
DCFR or Gandolfi codification (6:111 PECL; the Art III.-1:110 DCFR; the Art 157
of the Code européen des contracts). In general, the concept of clausula rebus sic
stantibus, as set forth in NCC, corresponds to the “hardship” clause. The difference
between the approach of the Civil Code of 1964 and NCC is that according to the
former, the parties had to include such a clause in their agreement (if the abovemen-
tioned First republic approach was not accepted), NCC supports the idea that the
hardship clause is “immanently included in each contract” (except the so-called
bold agreements); more detailed regulation of the clause may be found in NCC’s
chapter on general law of obligations in the Sec 1765–1766.
Czech private law will have to differentiate in more detail between the “objective
impossibility of fulfillment”, “subjective impossibility of fulfillment” (sometimes
called “economic impossibility of fulfillment”) and a situation in which it is more
difficult or expensive to fulfill an obligation. Whereas the objective impossibility of
fulfillment leads to a termination of an obligation,6 “economic or subjective impos-
sibility of fulfillment” means that a fulfillment of a debt is still objectively possible,
but there are significant impacts on the debtor which may even lead to winding up
of such a debtor. The concept clausula rebus sic stantibus should therefore apply to
extraordinary situations that cause among other things “economic impossibility of
fulfillment”. With respect to eliminating the effects of financial crisis, the concept
may be used for balancing the “effects of an economic crisis” between both parties
with the motto “we all want to survive the economic crisis”. Looking for a balanced
obligation, i.e. balanced rights and obligations of both parties will thus oscillate
4
Compare: Hulmák et al. (2014).
5
Eliáš et al. (2012).
6
Impossibilium nulla est obligatio (Digesta 50,17,185).
108 M. Selucká
between the two principles recognized in democratic societies, i.e. the principle of
‘pacta sunt servanda’ and ‘rebus sic stantibus ominis promissio itellegitur’ (Aquinas,
T. Summa theologiae 2,2,110,3).
6.6 The Czech Concept of Clausula Rebus sic Stantibus
According to Czech law, the concept of clausula rebus sic stantibus applies if all of
the following conditions are met:
(a) Change of circumstances
(b) Unpredictability of such a change
(c) Unavoidability of such a change
(d) Not assuming the risk of a change on oneself
(e) Occurrence of an extreme disproportion between the rights and obligations
(f) Causal connection between the change of circumstances and occurrence of the
extreme disproportion
Economic crisis and its impact on the debtor’s ability to fulfil his obligation, i.e.
to settle his debt, may meet all the three basic condition (A through C), i.e. it may
be characterized as unpredictable and unavoidable change of circumstances. General
law of obligations, however, upholds an idea that agreements should be kept and
that outer circumstances should not influence a contract, i.e. a mere fact that fulfill-
ment of an obligation may become less favorable for the debtor, i.e. he may gain less
profit, cannot bring about termination of an obligation or origination of a right to
launch new negotiations on the contractual terms (compare the Sec 1764 NCC). The
contractual parties have to consider the risks while concluding the contract. The
effects of the risks should be eliminated within the contractual terms, i.e. a moral
and fair agreement shall be balanced as for the division of risks between the two
businesses (B2B). As for consumer contracts, businessman cannot transfer risk to a
consumer, since such a provision would be considered as disproportionate or unfair.
Hence, Czech law would not take such a provision into account (the Sec 1815 NCC;
the lawgiver construes a fiction of nullity of a legal deed).
Economic factors are however only relevant if their influence cannot be charac-
terized as a part of a common economic risks, i.e. risks that are usually connected
with enterprising. Deviations from the normality of an economic course of affairs in
society may however be a relevant factor; whether there is a downturn of currencies,
collapse of monetary unions, change of some regulations, e.g. government directed
prices of goods and services, collapse of directed economy and turn to market econ-
omy, hyperinflation, market downturns, or local conflicts or wars. The Czech litera-
ture the 1920s and 1930s openly stated: “We do not mean only a price increase
which each good business or producer should consider although he may not make
any profit or even suffer loss, what we have in mind is extraordinary circumstances
caused by unpredictable events which cause an enormous rise of prices that a sup-
ply for the originally agreed prices is not possible without ruining the businessman
or a supplier.” (Vážný 409 Supreme Court decision NS ČSR of February 10, 1920,
sp. zn. Rv I 30/20).
The unpredictability of a financial crisis may be assumed. Nevertheless, it is also
important whether a particular contract was entered into during an ongoing crisis or
when there was no real serious threat of a crisis. The Czech Supreme Court explic-
itly ruled that: “An economic impossibility of fulfillment shall only be taken into
account if it had not been caused by such events that the parties might have expected
at the time of concluding the contract (…) If a contract had been concluded before
the war, but the date of performance took place during the war when the circum-
stances changed significantly and thus fulfillment of the contractual obligations
become impossible, the court practice considered it as accidental impossibility,
because such a radical change of circumstances was not possible to predict. If how-
ever a contract was concluded during the war, the circumstances were such that a
party should have foreseen that a future economic impossibility might occur and if
the impossibility was caused by such a party, the party may not claim that it was an
accident and may not request benefaction of the legislation” (Vážný 1815. Rozh.
NS ČSR ze dne 5.9.1922, sp. zn. Rv I 455/22).
6.7 Not Assuming the Risk of a Change on Oneself
In general, Czech private law stands on a principle that even if there was nothing
particular in this respect concluded in an agreement, the clause ‘rebus sic stantibus’
is a “natural component of a contract”. This applies unless the parties agree other-
wise, i.e. the parties may set in the agreement that this principle does not apply to a
possible event of an economic crisis. A party may also assume, i.e. accept, all risks
arising out of a contract; or such assumed risks may be itemized in the contract. We
should however ask whether it is correct and fair if one of the parties bears all the
risks, whereas the other is free of such risks. Such a situation could be accepted in
so-called bold agreements or “almost” bold agreements, i.e. agreements that are
based on some type of a speculation or a “bet” that a development will proceed in a
certain way. In these cases, it is not relevant to take account of a significant change
of circumstances. An excessive transfer of a risk to only one of the contractual par-
ties, i.e. assumption of risk by one of the parties, could be considered if the risk is
reflected for example in the price for the service or for the thing being purchased;
the share of the risk assumed shall, however, be equivalent to the price.
Nevertheless, if such an assumption of risk will bring about winding up of the
assuming party, it is a question whether we should consider such a provision as
moral and valid. As for B2C relationships, we believe that such provisions are not
acceptable and the Czech Civil Code regards them to be null. As for the B2B rela-
tionships, it may happen that, for instance, a large transnational corporation misus-
ing its power may dictate conditions that have to be accepted by the small businesses;
some of the conditions could be assumption of risk connected with running a busi-
ness by the small businesses. This could lead to a situation that in case of a financial
110 M. Selucká
crisis, such a transnational corporation would not feel the effects of the crisis,
whereas the small businesses to which the risks connected with the business of the
large corporation were transferred will be eliminated as a result of an excessive and
unfair division of risks. In the today’s global society, there is no real autonomy of
will, as the economic power of some market participants means that the small entre-
preneurs have, in principle, no real chance to negotiate contracts freely; they rather
have to accept the conditions dictated by the stronger party. Therefore, in the model
solutions, we often see the term “small business”,7 which requires special protection
from a misuse of power by the economically powerful transnational corporations.
While considering the validity of provisions based on which a risk is unilaterally
transferred to only one of the parties, attention should be paid not only whether this
factor reflects in the price, but also whether the assumption of the larger part of risk
or all the risk by one of the parties is not caused by a misuse of the economic power
of the other party.
6.8 An Excessive Disproportion Between the Rights

and Obligations
The occurrence of extraordinary circumstances does not necessarily have to lead to

an unbalanced legal relationship between the parties. Clausularebus sic stantibus
may only be applied if the extraordinary circumstances (economic crisis) cause that
the proportion of rights and obligations of the parties is “extremely unbalanced” or
“extremely unfair”. The disharmony may be found in a disproportionate increase of
costs to be incurred during trying to fulfill the obligation on the side of the debtor or
a disproportionate decrease of the object of performance on the side of the creditor.
The disharmony (disproportion) has to be ‘qualified’, i.e. not just any unbalance in
rights and obligations may lead to rights arising from a significant change of cir-
cumstances. An extreme unbalance may be based not only by a change of price, e.g.
on the market, but also on occurrence of better alternative options. For instance, the
Supreme Court ruled that: “If the process of rezoning the agricultural land to build-
ing land started between the conclusion of pactum de contrahendo and the sales
contract, and if the defendant (the future seller) could not foresee such a change that
caused that prices of the land increased significantly (also unpredictable), it may be
concluded that a significant change of circumstances took place and the plaintiff
cannot request that the defendant (the future seller) would conclude the sales con-
tract (…) The changes found interfered the originally balanced agreement to con-
clude a sales contract which lead to disharmony of rights and obligations disfavoring
the defendant, who, while concluding pactum de contrahendo, could only calculate
7
Compare: the Sec. 7 and 8 CESL; ‘SME’ is small or medium-sized enterprise.
with an increase of price of land zoned as agricultural land and not a land for build-
ing houses.”8
It is likely that the new (still non-existing) judicial decisions interpreting the
general institute clausula rebus sic stantibus in the NCC and the term “extreme dis-
proportion” will refer to the judicial decisions of the inter-war period. Any general
partial expression of the term “extreme disproportion” can neither be expected in
the Czech judicial decisions not in the legal doctrine. Foreign judicial decisions may
however serve as inspiration; there is not however any “clear and unambiguous
rule” expressed in a mathematical formula. As for explanation of hardship in
UNIDROIT,9 the practice of the courts oscillates between 80 and 100 %, but it can-
not be considered as an undoubtable and clear mathematical rule,10 as also the prac-
tice of courts in relatively divided.11
6.9 Legal Consequences of the Significant Change

of Circumstances
If the hardship conditions cumulatively expressed in NCC are met, it does not lead
to termination of an obligation due to economic impossibility of fulfillment. The
party which believes that the disproportion of rights and obligations disfavors such
a party cannot reject performance; if the party did so, the party would have to bear
the consequences of default or faulty performance, e.g. it has to pay contractual
penalty, etc. Stricto sensu, by fulfilling the hypothesis of rebus sic stantibus, the
content of obligation does not change and the rights and obligations remain the
same. Nevertheless, aside from the rights arising out of the contract, any of the par-
ties has a right to launch new negotiations about contract, i.e. right to renegotiations.
In fact, it is not a new negotiation about a contract, because a contract was already
concluded; it is rather a right to renegotiate changes in the content of the obligation
so that its content is balanced and fair.
Any of the parties may then ask the other contractual party to start negotiations
on change of the contractual conditions. This is a general requirement, because the
autonomy of will is a crucial principle of private law. Nevertheless if there is a sig-
nificant change of circumstances, any of the parties has a right to negotiate and the
other party has to negotiate although it does not even want to. Whereas the standard
process of concluding a contract or a change of a contract is based on a free will of
both parties, as for hardship, the legal status of the parties is different, because each
of the parties has a right to ask for a new negotiation and the other party is obliged
8
Decision of the Supreme Court of March 28, 2012, No 33 Cdo 884/2010).
9
Compare: the decisions of May 4, 1999, Himpurna California Energy Ltd. v. PT Perusahaan
Listruik Negara, XXV Y.B. Intʼl Comm. Arb. 13.
10
Girsberger D, Zapolskis P, (2012), Brunner (2009).
11
CMS Gas Transmission Company v. The Argentine Republic, ICSID Case no ARB/01/8, of May
12, 2005; Scafom International BV v. Lorraine Tubes S.A.S., 2009.
112 M. Selucká
to negotiate. However, they do not have to come to an agreement; they are just
obliged to negotiate.
The right to request that new negotiation is tackled has each of the parties, once
the abovementioned conditions are all met. The statutory period starts to run, as
soon as the party had to be aware of the change of circumstances. The party has to
exercise its right within a reasonable time. The Czech lawgiver set a rebuttable pre-
sumption that the ‘reasonable time’ is 2 months. However, evidence to the contrary
is allowed, which means that the period may be longer in certain cases. The reason-
ableness of the period will be probably considered with respect to the nature of
performance, the manner in which means of communication are used and other
circumstances. The period is defined as relatively flexible. If the other party exer-
cises its right to launch new negotiations late, it does not mean that its right per-
ished. However, if the parties do not come a to an agreement and if one of the parties
turns to the court and files an action asking the court to balance the rights and obli-
gations, the court shall reject the action because a right to renegotiation was not
exercised within a reasonable period towards the other party. The other party does
not even have to claim that the period was missed, as the court has to research the
period ex offo; of course, prior to that, the court would have to solve a preliminary
question whether, with respect to all circumstances, the adequacy of the period does
not differ from the presumption set forth by the law.
It may be deduced from both the general part of law of obligations and the gen-
eral principles of private law that parties shall act in an honest and responsible way.
The other party may not act only formally; they cannot misuse their powers, block
or slow down the litigation.
The negotiation of the parties may lead to cumulative novation, i.e. the original
obligation still exists, but it is altered. The original obligation may, however, be
replaced by a new obligation (privative novation), but the outcome of the negotia-
tion may also be a termination of the obligation without completing its goal, i.e. the
debt will not be settled at all. If an agreement is not reached despite all the efforts of
the parties, each of the parties may turn to the court and request that the court alters
the obligation or even cancels it.
The court shall try to find a balance between the mutual rights and obligations. It
means that the impact of the extraordinary circumstances should be fairly divided
between the two contractual parties. The court will probably not look for the “origi-
nal balance state of affairs” which was originally agreed upon by the parties in the
contract, but it will rather divide the impacts of extraordinary circumstances on
rights and obligations arising out of the contract fairly between both of the parties.
It may also happen that the original contract was concluded in a disproportionate
disfavor to one of the parties. It such a case, it is possible to consider whether the
original contract is valid at all or not and whether the court should modify the rights
due to the change of circumstances. The court may not replace the original immoral
contract by a new moral contract; it may only take into consideration the impacts of
the change of circumstances on the existing rights and obligations.
If the court finds out that the action filed is legitimate, i.e. the plaintiff has a right
to have new negotiations, the court will decide how the rights and obligations of the
parties changed; this is done with so-called ex nunc effects, i.e. the content of the
obligation will be changed as of the day on which the decision enters into force.
The Czech private law differentiates between several types of actions, but the
court may not decide that the plaintiff receives more than what he asked for in the
action. In so-called determining actions, the court is not bound by the action, i.e. the
court may decide differently from what the plaintiff asked for; the court may even
rule that the plaintiff receives more than what he asked for, because the court has a
duty to set the rules and obligations the way they are. If a new contract is not con-
cluded, each of the parties has a right to ask the court to determine a balanced rights
and obligations of the parties. Despite the fact that the NCC does not explicitly
states it, it is clear that such an action is a so-called ‘determining action’.12 The court
therefore balances the rights and obligations regardless of the action filed by the
plaintiff.
The NCC is based on a liberal thesis that, especially as for the relative proprie-
tary rights (obligations), it is possible to deviate from the law if it is not explicitly
banned by the law. It is an interesting question which has not been solved by the
Czech legal doctrine whether it is possible not to exclude the concept of change of
circumstances, i.e. the right to launch new negotiation, and in the same time, exclude
the right to file an action before the court as a consequence of not coming to an
agreement. The model solution included in NCC allows only assumption of the
danger of change or circumstances by one of the parties, i.e. the right to negotiation
does not exist at all. Therefore, the question whether the parties may only exclude
only the right to file an action before the court remains open. We could probably
deduce that if it is possible to exclude application of the entire concept (and assume
the risk of the change of consequences), it will also be possible to modify it, e.g.
exclude the right to file an action if the renegotiation fails.
6.10 Financial Crisis Has a Significant Impact

on Obligations Because It Brings About Termination
of such Obligations Without Settling the Debt
The impacts of a financial crisis on legal relationships may, in some cases, be cru-
cial, i.e. they may lead to a situation when a party is not able to settle its debt prop-
erly and on time, e.g. because the party’s suppliers did not settle their debts (did not
fulfil their obligations). Generally, this will not be an objective impossibility of
performance, because in such cases the obligation would perish ex lege. If, however,
a party has been in delay over a long period of time, the other party may withdraw
from a contract. There is a rule in the Czech private law that if one of the parties
breaches a contract in a significant manner, the other party has a right to withdraw
from the contract according to the Sec. 2002 NCC. Aside from that the party may
12
Compare: Králík M, Lavický P (2012).
114 M. Selucká
ask for compensation of damage caused by such a breach, i.e. contractual penalty or
default interest (in case of monetary obligations). Significant breach of contract
does not have to be just default, but also faulty performance.
As for faulty performance, the Czech Supreme Court ruled: “If he parties do not
set in their contract the criteria for determining when a breach is significant, the
significance is usually determined by the extent and nature of the defects. In the case
on hand, the expert opinions showed that the floors were faulty and they do not meet
the health requirements in 80 per cent, the parquet blocks have sharp edges, grout
in the joints crumbled away, the floor is dangerous for children, etc. If the appellate
court found that the respective contract for work was breach in a significant man-
ner, this finding is correct with respect to the extent and nature of the defects”.13
In some cases, the parties may react to the impacts of a financial crisis that they
agree on termination of the original obligation which, due to an economic crisis,
became disadvantageous, difficult or economically impossible. They may come to a
new agreement independent from the original one. It is especially up to the parties
whether they want to agree on privative or cumulative novation, or whether they
want to cancel the obligation from its beginning. A new agreement realized on the
grounds of the concept clausula rebus sic stantibus may be that the original contract
is canceled; it may happen based on an agreement of the parties or, if they do not
come to a new agreement, and one of the parties petitions the court, then the court
could decide that the original contract is canceled. It is also possible that the plain-
tiff will ask that the rights and obligations arising from the original contract are
modified, but court, as it is not bound by the action, may cancel the contract.
6.11 Impossibility of Performance as a Result of a Financial

Crisis
Czech private law differentiates between so-called initial and subsequent impossi-
bility of performance. The initial impossibility of performance means that the legal
deed (a contract) did not occur at all, i.e. it is only an apparent (non-existing, null
legal act). If, however, the performance is possible at the moment of conclusion of
the contract but it later becomes impossible, it results in termination of the
obligation.
The concept of ‘impossibility of performance’ is based on the objective impos-
sibility of performance in Czech private law. It means that if the debt may be settled
by some else, it is not an objective impossibility of performance, but only subjective
impossibility which does not have any impact on the existence of rights and obliga-
tions. It may however have an influence on, for instance, the right to launch new
negotiation about the contract in light of clausula rebus sic stantibus. If, however,
the nature of the debt were intertwined with a special skill of a particular individual
13
Decision of the Supreme Court of June 23, 2010, No 23 Cdo 1991/2008.
(nobody sings like Karel Gott), the obligation would cease to exist together with the
particular ability needed for performance, e.g. vocal cords surgery and permanent
loss of voice. Objective impossibility of performance may also happen if, for exam-
ple, the object of performance ceases to exist; this, however, does not apply to a
temporary change in the features of the object.
In this respect, the Supreme Court ruled: “Termination of a lease as a result of
destruction of the leased object is a special example of subsequent impossibility of
performance. Destruction of the leased object happens when the leased object
ceases to exist; the object may no longer be utilized. However, only a temporary loss
of certain features of the object shall not be considered as destruction. A mere dam-
age to a thing is not destruction. It may result in lessee’s right to receive a discount
or a right to withdraw from a lease contract, whereas the lessor has to restore the
object of lease. The lease terminates only if the object of lease ceases to exist, for if
it does not exist, it cannot be leased.”14
According to the Czech general courts, if a debtor, for instance, loses his rights
to perform his obligation, the law requires that such a performance is banned, e.g.
there is a court decision or a decision of an administrative body that bans the activi-
ties to be performed by the debtor. These cases are usually called ‘subsequent
illegality’.
The Supreme Court decided that: “A rejecting zoning decision in the particular
case was an obstacle to mining of gravel in the particular area and therefore it was
a hindrance to performance according to the sales contract, as lack of a positive
decision caused that the mining could not be started. This hindrance would not be
regarded as ‘subsequent impossibility of performance’ if it were possible to perform
after the particular date (…) In other words, while considering the consequent
impossibility of performance, one may not take account of the events that took place
later, after the hindrance of performance occurred. It means that while considering
whether performance may be carried out after the agreed date, the decisive circum-
stances are only those that existed in the time when the hindrance of performance
occurred.”15
“There was issued a decision prohibiting the defendant to carry out business as
a physical person as for extending credit and giving loans (…) The defendant there-
fore cannot fulfill his obligation to extend credit for the plaintiff; the obligation of
the loan contract thus perished due to the subsequent impossibility of performance.
One should not consider that the defendant could have fulfill his obligations by
means of another person or regardless of the more difficult circumstances with
higher costs or after the date agreed upon, for such a behavior would have to be
considered as circumventing the law.”16
Economic impossibility of performance is, however, not a legally relevant fact
that would lead to termination of an obligation due to impossibility of performance.
If the performance is possible with more costs or under more difficult conditions,
14
Decision of the Supreme Court of May 30, 2012, No 25 Cdo 4850/2009.
15
Decision of the Supreme Court of April 10, 2007, No 32 Odo 795/2006.
16
Decision of the Supreme Court of June 26, 2012, No 32 Cdo 2762/2010.
116 M. Selucká
the obligation does not terminate for impossibility of performance. The same rule
applies to a situation when it is possible to settle a debt after certain time. The Czech
Supreme Court ruled: “If the law states that fulfillment is not possible, if it only may
be carried out after the agreed date, it is objective, not subjective category. If the
construction of a family house could have been carried out (a proper building per-
mission was issued, a contract for work was concluded, proper credit was granted,
there were not any circumstances depending on man’s will that would prevent the
construction), but the subjective approach of the defendant was to stop the con-
struction, we may conclude that performance of the defendant was possible.”17
We may conclude that where it is not possible to consider performance as objec-
tively impossible, i.e. it does not contrary to natural laws, the concept of hardship
applies. On the other hand, as for objective impossibility, the obligation terminates
ex lege. The distinguishing between the two may be very slight so it is up to the
general courts to deal with assessment of the facts using “common sense” and the
“natural order of things”. In general, Czech private law prescribes that performance
is not possible if it is not possible due to physical-mechanical or legal reasons, i.e.
not upon economical impossibility to perform. The concept clausula rebus sic stan-
tibus is relatively new to Czech private law, as until December 31, 2013, it was only
deduced by theoretical argumentation of the legal doctrine, but it was not reflected
in the judicial decisions of the general courts. It is interesting that the Czechoslovakian
totalitarian law was based on the principle of economic impossibility of perfor-
mance, especially because of the fact that most of the parties had to be characterized
as “socialist institutions” which cannot bear the consequent economic impossibility
of performance due to political reasons.
As for impossibility of performance in Czech private law, the Supreme Court
ruled that: “impossibility does not equal difficultness or the so-called objective dif-
ficulties which do not cause invalidity of a legal act. Invalidity of a legal act may
only be brought about by a physical objective impossibility based on the fact that
certain behavior which is an object of a legal act is not possible to be performed due
to the natural rules for everybody. Impossibility of performance is objectively
regarded impossibility, not a mere confidence of the debtor that the performance is
not possible.”18
“Impossibility of performance, should it lead to termination of an obligation, has
to be objective, independent from the person or will of the debtor. The so-called
economic impossibility of performance meaning that the obligation may only be
fulfilled under more difficult conditions, with higher costs or after the date agreed
upon or the subjective impossibility do not bring about termination of the business
obligation. The obligation thus does not cease to exist due to impossibility of perfor-
mance if the debtor is not able to pay, regardless of whether the inability to pay was
caused by him or whether it is based on other circumstances caused by the debtor.”19
17
Decision of the Supreme Court of October 20, 2011, No 30 Cdo 3460/2009.
18
Decision of the Supreme Court of September 23, 2009, No 33 Cdo 1787/2007.
19
Decision of the Supreme Court of January 25, 2012, No 32 Cdo 3334/2010.
6.12 Termination of an Obligation Without Settlement

of Debt and Further Relating Rights
Termination of an obligation without settlement of debt caused by the impacts of

economic crisis in private-law relationships will usually result in origination of right
to compensation for damage or handing over unjust enrichment or both. The parties
have to agree on distribution or a share of how they would implement the conse-
quences of a financial crisis into the obligation. In other words, they are “sharing the
damage caused by a financial crisis”, whether by their own agreement or by a court
decision.
As for default, the creditor is entitled to receive interest or even contractual pen-
alty. If the creditor, however, withdraws from the contract, he shall also have the
right to compensation for damage if the failure to fulfill obligation in time lead to
harm of the property of the creditor and the damage caused due to the debtor’s delay
is not covered by default interest (the Sec. 1971 NCC). If the harm arising out of
breach of a certain provision of a contract is covered by the contractual penalty, the
creditor is not entitled to claim right to compensation for damage unless agreed
otherwise by the parties (the Sec. 2048 NCC).
If an obligation ceases to exist due to objective impossibility of performance, the
creditor shall have a right to compensation for damage based on what the cause of
termination of the obligation is, i.e. whether the obligation ceased to exist because
of the behavior of the debtor or of the creditor or due to vis maior. It is considered
that vis maior is an outer event which cannot be affected by any of the parties. In
general, if the debtor caused that an obligation ceased to exist, the debtor is respon-
sible for damage. If it was the creditor who caused the termination of the obligation,
he shall be responsible for the damage.
Czech private law now differentiates between the right to compensation for dam-
age caused due to breach of law or of a contract. Whereas breach of law is based on
fault, i.e. there is subjective liability with the possibility of exculpation, breach of a
contract is based on objective liability which admits the so-called reasons of libera-
tion. It is a question whether an economic crisis may be classified as “an extraordi-
nary, unpredictable, insurmountable obstacle not based on a will or the debtor or on
his personal circumstances and not having occurred only after the due day”. In
general, such extraordinary circumstances are, for example, environmental catastro-
phes, e.g. flooding, wildfire, etc, i.e. not “economic disasters”. The Czech Supreme
Courts ruled: “If, for the purpose of international wire transaction, a domestic bank
chooses a brokering bank in a so-called risky area in which there are economic and
political reasons of payment difficulties leading to revocation of a bank license,
which would result in not carrying out the payment of the client, the domestic bank
will not be released from its obligation to compensate the damage.”20 In other case,
the Supreme Court explains its approach in more detail: “A circumstance removing
liability may also be an obstacle which does not depend on will of the debtor and it
20
Decision of the Supreme Court of January 8, 2003, No 29 Odo 690/2001.
118 M. Selucká
prevents the debtor to fulfill his obligation if one cannot reasonably presume that a
the party should be able to over the obstacle or its consequences or to presume it.
In agricultural production, one should take account of a situation that crop failure
may take place; thus the objection that crop failure is a reason of liberation accord-
ing to the Section 374 para 1 of the Business Code,21 may not be upheld, for the
defendant, who is a businesswoman engaged in the agricultural sector, was obliged
to take account of a possible crop failure while concluding the contract. It shall
agree with the court that emphasized that the defendant was obliged to supply, i.e.
not grow, the particular crop, or to be more precise the mustard plant. Therefore,
the defendant’s objection that the supply could not be sent due to unfavorable
weather conditions is not of any legal relevance. The defendant could have pur-
chased the supply which she obliged herself to supply obtain in other manner, i.e. if
she was not able to grow it, she was supposed to purchase it from other supplier or
farmer and fulfill her obligation to supply the commodity. The defendant thus can-
not be release from responsibility to compensate the damage.”22
6.13 Conclusion
Law, as a normative system dealing with and defining what ‘shall be’, is not able to
eliminate the occurrence of economic or financial crises. Crises are an integral part
of the development of human society and economy although they are an unwanted
and unwelcome event. The system of law should have a preventive function, i.e. it
should be set to make sure that irresponsible behavior of certain individuals or cor-
porations could not bring about an economic crisis, or to be more precise, such a
behavior should be “ostracized” or eliminated to a minimal degree. Therefore we
consider the main function of the normative function to prevent economic crises by
laying down fair “rules of games” and ensuring that the rules are followed.
Nevertheless, it may happen that although the market participants comply with the
principles of fair market, financial crises may occur and affect the legal relations in
the society.
In our opinion, the system of private law should be set to make sure that the
effects of a financial crisis were “distributed” among all members of society, i.e. that
the consequences and risks of an economic crisis are born by all classes of society,
especially the middle class and the richest class, since it is likely that if hit by the
consequences of a crisis, the poorest members of society would have existential
problems. Aside from the basic standard solution is an agreement on change of the
content of an obligation which would react to the changes brought by an economic
crisis, the hardship clause or the concept of clausula rebus sic stantibus may be
applied, i.e. an origination of the party’s duty to negotiate about a change that would
take account of the effects of a financial crisis if requested by the other party. If a
21
Now, the same rule is included in the Sec. 2913 para 2 of NCC.
22
Decision of the Supreme Court of January 25, 2012, No 23 Cdo 3066/2010.
new fair agreement is not achieved, the rights and obligations of the contractual par-
ties may be modified by the court. If it is not objectively possible to rely on fulfill-
ment of an obligation, it shall be accepted that the obligation ceased to exist without
settling the debt, i.e. the purpose and goal of an obligation was not achieved, but this
solution is more reasonable for both parties and it does not affect the property of
both of the parties so heavily that what would happen if sticking to the original
obligation.
In general, we could say that the purpose and objective of the concepts eliminat-
ing the effects of a financial crisis on the rights and obligations of the parties is “a
survival of the democratic society as a whole” and making sure that the impact of a
financial crisis on the legal relationships was as small as possible and fairly distrib-
uted among all the classes of society. It is not possible to admit that the effects of a
financial crisis were born by small businesses or small entrepreneurs, the poorest
population and the middle class, whereas the transnational corporations, large and
global business would transfer their losses caused by the crisis to the weaker and
dependent individuals.
The fundamental principles of democracy are not only the freedom of individu-
als including, for instance the rights to run business, but also responsibility and soli-
darity. The effects of financial crisis on private-law relationships should be
considered especially with solidarity in mind. Solidarity should be also taken in
account while offering model solutions that would not have a crucial impact only on
the weakest individuals and eventually the middle class, but they should also affect
the richest part of society.
References
Brunner, C. 2009. Force Majeure and Hardship under General Contract Principles: Exemption for
Non-Performance in International Arbitration. Alphen aan den Rijn: Kluwer Law International.
Eliáš, K. 2009. Clausula rebus sic stantibus (Význam změny okolností pro trvání obligace ex con-
tractu). Obchodněprávní revue, No 6.
Eliáš, K., et al. 2012. Nový občanský zákoník s aktualizovanou důvodovou zprávou, 1st ed. Ostrava:
Sagit.
Girsberger, D., and P. Zapolskis. 2012. Fundamental alteration of the contractual equilibrium
under hardship exemption. Jurisprudencija 1: 125–129.
Hulmák, et al. 2014. Občanský zákoník V. Závazkové právo. Obecná část (§ 1721–2054), 1. ed.
Praha: C.H. Beck, p. 223–235.
Králík, M., and P. Lavický. 2012. Doložka rebus sic stantibus. Soudní rozhledy, No 10.
List of Cases
CMS Gas Transmission Company v. The Argentine Republic, ICSID Case no ARB/01/8, of May
12, 2005; Scafom International BV v. Lorraine Tubes S.A.S., 2009.
ECJ of April 26, 2012, Nemzeti Fogyasztóvédelmi Hatóság v. Invitel Távközlési Zrt., C-472/10.
120 M. Selucká
ECJ, of March 21, 2013, RWE Vertrieb AG proti Verbraucherzentrale Nordrhein-Westfalen eV.,
C-92/11.
Himpurna California Energy Ltd. v. PT Perusahaan Listruik Negara, XXV Y.B. Intʼl Comm. Arb. of
13 May 4, 1999.
Supreme Court No 21 Cdo 5205/2007 of December 8, 2009, available: www.nsoud.cz; http://
www.nsoud.cz/Judikatura/judikatura_ns.nsf/WebSearch/EFA70C129418AC1AC1257A4E00
65BC95?openDocument&Highlight=0,21,cdo,5205/2007
Supreme Court of April 10, 2007, No 32 Odo 795/2006.
Supreme Court of January 25, 2012, No 23 Cdo 3066/2010.
Supreme Court of January 25, 2012, No 32 Cdo 3334/2010.
Supreme Court of January 8, 2003, No 29 Odo 690/2001.
Supreme Court of June 23, 2010, No 23 Cdo 1991/2008.
Supreme Court of June 26, 2012, No 32 Cdo 2762/2010.
Supreme Court of March 28, 2012, No 33 Cdo 884/2010.
Supreme Court of May 30, 2012, No 25 Cdo 4850/2009.
Supreme Court of October 20, 2011, No 30 Cdo 3460/2009.
Supreme Court of September 23, 2009, No 33 Cdo 1787/2007.
Chapter 7
Financial Crises and Danish Contract Law:
No Room for Hardship
Mads Bryde Andersen and Joseph Lookofsky
Abstract Danish law recognizes a number of modifications to the pacta sunt ser-
vanda rule. When such modifications apply, a promisor may be relieved, in whole
or part, of its obligation to perform as originally agreed. Due to the emphasis usu-
ally placed on pragmatic considerations in Danish law (which goes hand in hand
with a lack of legal formalism in our legal system), the various recognized excep-
tions to pacta sunt servanda – both statutory and otherwise – sometimes tend to
overlap. So although it seems appropriate in a comparative context to provide a
schematic (point by point) presentation of these exceptions – e.g. with specific focus
on exceptions related to the possible effects of financial crises (“Hardship”) –
account must also be taken of their interaction in Danish legal theory and practice,
not least because Danish courts do not always specify the exact legal principle
which they apply when holding that a contractual provision is not binding.
7.1 Introductory Delimitation in Scope: Exclusion

of Financial Institutions
Financial crises may impact on contractual obligations in different ways. For this
reason it is appropriate to make some preliminary observations about the effect of
financial hardship (i.e. difficulties in obtaining funding caused by dysfunctions in
financial markets) on promises rendered by financial institutions (banks, insurance
companies, etc.).
As a main rule, which admits of nearly no exceptions, financial institutions
remain bound to meet their contractual obligations, irrespective of whether a given
institution’s failure to perform is the result of unexpected macro-economic
circumstances.
In relation to what is now referred to as the Systemically Important Financial
Institutions (“SIFI”), the insolvency of one financial institution can quickly spread
to other financial institutions or businesses that rely on the promises of such institu-
M.B. Andersen (*) • J. Lookofsky

Faculty of Law, University of Copenhagen, Copenhagen, Denmark
e-mail: mads.bryde.andersen@jur.ku.dk; joseph.lookofsky@jur.ku.dk

122 M.B. Andersen and J. Lookofsky
tions. In this way the failure of one such SIFI can trigger a larger financial crisis,
thus putting the economic well-being of the whole financial system at risk. To avoid
a total breakdown of the financial system, governments and legislators during the
recent financial crisis which commenced in 2008 intervened with government guar-
antees of various kinds.1 In November 2011 the Basel Committee on Bank
Supervision (see www.bis.org/bcbs/) introduced a new set of regulations known as
“Basel III”. On the basis of these regulations, a number of countries are now in the
process of identifying which financial institutions qualify as SIFIs and implement-
ing procedures to make sure that the inability of such institutions to perform their
financial promises will not cause harm to the financial system as a whole.2
In light of this development, one might say that “hardship” in relation to financial
institutions at large has become a legislative issue on the macro-economic political
agenda, rather than a contractual issue to be dealt with by the parties themselves at
the micro-economic level. Hardship is simply not relevant as an excuse for a bank’s
non-performance of contractual obligations to its creditors.3 In Denmark at least, it
has never (not even in 2008) been seriously suggested that financial institutions
should be relieved by reason of hardship.
For these reasons, the following discussion as it relates to contractual obligations
involving financial institutions will focus only on the consequences which a finan-
cial crisis might have for parties other than those who rely on the contractual prom-
ises rendered in financial products (e.g. contracts regarding bank deposits or bank
guarantees). In all circumstances, the financial institutions are expected to fulfill
their obligations, even under the most severe hardship conditions.
1
In Denmark, in the wake of the collapse of Lehman Brothers in September 2008, the interbank
market literary froze, leaving numerous Danish financial institutions with severe funding problems
and liquidity risks. To overcome these problems, the Danish government introduced a legislative
package (“Bank Package I”) which included a two-year government guarantee for all deposits and
all financial obligations of those Danish financial institutions who opted into the package.
Obviously, there are limits to governmental interventions of this kind. When the government guar-
antee expired in 2011, Danish banks were on their own again. A few months after a Danish bank
of substantial size (Amager Bank) went bankrupt leaving numerous creditors unable to recover the
full amount of their original clams above the 100,000 Euro guarantee provided by the Danish
Guarantee Fund for Investors and Depositors.
2
In other words cyclical risks such as those outlined above can not affect the validity of the prom-
ises rendered by financial institutions as part of their financial products, in that the value to the
financial system of the performance of and reliance on such promises is far stronger than the inter-
est of one particular institution in being relieved of its promise under a given exception to the main
rule that contracts are binding.
3
See also note 1 above.
7 Financial Crises and Danish Contract Law: No Room for Hardship 123
7.2 Financial Crises and Pacta Sunt Servanda
The earliest recorded sources of Danish law reflect Denmark’s long-standing adher-
ence to the Roman law doctrine of pacta sunt servanda, i.e. the general principle
that agreements must be kept. Indeed, Article 5-5-1 of the Danish Code of 1683, as
promulgated by King Christian the 5th (the forerunner of all Danish statutory law),
continues to mirror that Roman rule. The same principle follows from Article 1 of
the 1917 Danish Contracts Act.
A key goal of the Danish legal system is to maintain the existence of a well-
functioning market economy. Clearly, the principles of contractual freedom and
binding agreements are indispensible elements of that economy, and even if
Denmark had not cemented these principles by statute, they would remain applica-
ble as judge-made law.4
Before proceeding to address various recognized “exceptions” to the pacta sunt
servanda rule, it is important to emphasize that codified rules of Danish contract law
are in many contexts supplemented by unwritten general principles of law. These
principles consist of both judge-made law and scholarly opinion which is expected
to be applied by Danish courts. The fact that such principles are not codified does
not deprive them of their legal force in Danish contract law.5
7.3 Exceptions to General (Binding Contract) Rule
7.3.1 Introductory Remarks
Danish law recognizes a number of modifications to the general pacta sunt ser-
vanda rule. When such modifications apply, a promisor may be relieved, in whole
or part, of its obligation to perform as originally agreed.
Due to the emphasis usually placed on pragmatic considerations in Danish law
(which goes hand in hand with a lack of legal formalism in our legal system),6 the
various recognized exceptions to pacta sunt servanda – both statutory and other-
wise – sometimes tend to overlap. So although it seems appropriate within the pres-
ent comparative context to provide a schematic (i.e. point by point) presentation of
the exceptions described under the individual headings and categories below,
account must also be taken of their interaction in Danish legal theory and practice,
not least because Danish courts do not always specify the exact legal principle
which they apply when holding that a contractual provision is not binding.
4
See generally Andersen (2013), p. 53.
5
See Andersen (2013), pp. 56ff.
6
Regarding legal pragmatism in Nordic law, see generally Blandhold (2005).
7.3.2 Clausula Rebus Sic Stantibus
The Danish doctrine of failed assumptions (in Danish: svingtende forudsætninger)

reflects the general principle underlying the clausula rebus sic stantibus principle.
So, depending on the concrete circumstances, this Danish doctrine can come into
play as a modification of the pacta sunt servanda principle.
The starting point for the doctrine of failed assumptions is the psychological fact
that a party who promises to perform does so in light of its subjective view (assump-
tions) as to the state of current affairs at the time of contracting, as well as the likeli-
hood that changes might later take place and potential problems arise. Such
assumptions can be, or prove to be, incorrect, either at the time of contracting or at
a later point.
Originally based on a German variant of a similar principle,7 the Danish doctrine
of failed assumptions has sometimes been described in terms of “implied condi-
tions.” Clearly, an “assumption” may be used to fill gaps in a contract. But the
Danish version of this doctrine applies only to contingencies which have not
achieved the status of contractual conditions.8 Whereas a condition is regarded as a
part of the agreement (“jus”), the presence or absence of a legally relevant assump-
tion is a given fact (“factum”) that may have legal implications according to the
doctrine and under its requirements.9
The doctrine of failed assumptions has had its ups and downs, not least in Danish
legal theory. In recent decades it has been overshadowed by the advent of Article 36
of the Contracts Act – a rule which (as further explained under Sect. 7.3.7 below)
expressly empowers a Danish court to relieve a contracting party of its duty to per-
form a given contractual obligation which has become “unfair.” Although there are
many court cases to that effect, Danish courts are reluctant to apply Article 36 to
obligations incurred in contracts between commercial parties. Since there is an
“overlap” between the newer statutory and older judge-made rules, Danish courts
sometimes continue to premise their conclusions in terms of the parties’ justified
assumptions.
On the basis of Danish legal theory, as well as numerous relevant decisions ren-
dered by Danish courts, one can enumerate three generally applicable conditions
(i–iii) which must be met in order for a promisor to be granted relief on the basis of
a given failed assumption10:
i. Materiality (importance to promisor): The first requirement is that the assump-
tion in question was “material” for the promisor, this in the sense that the promi-
sor would not have made the promise if the assumption in question had, at the
time of contracting, been expected to fail. But since it will almost always be
7
See Andersen (2013), p. 399.
8
See Andersen (2013), p. 104 (comparing Lando’s characterizaton of the Danish doctrine).
9
See (e.g.) Andersen (2013), pp. 80–85 (comparing the English precedent established in Taylor v
Caldwell with the corresponding Danish doctrine).
10
See Andersen (2013), p. 108; see also generally Andersen (2013), pp. 400–403.
extremely difficult for the promisor to convince the court or arbitral tribunal of
its state of mind at the time of contracting, this first condition often flows into
the second (knowledge-of-promisee) prong.
ii. Knowledge of promisee: The second requirement is that the promisee knew or at
least ought to have known or foreseen at the time of contracting that the assump-
tion in question was material for the promisor. As with the first requirement, it
will also be difficult for the promisor to provide proof of the subjective state of
mind of the promisee at the time of contracting. For this reason courts often
focus pragmatically on “typical assumptions” (typeforudsætninger), i.e. the
knowledge which a “typical” promisee can be assumed to possess in circum-
stances comparable to those in the concrete case. This element is often most
easily established in cases where the parties share a common goal with respect
to the fruition of the transaction concerned.11 This was, for example, the situa-
tion in a case decided by the Danish Supreme Court in 2002 where an agree-
ment for the acquisition by the promisor of a given property was presumably
premised on the parties’ common assumption regarding the conclusion of a
rental agreement between the promisor and a third party (Burger King). When
the facts underlying that assumption failed to materialize, the promisor sought
to be relieved of its (originally binding) obligation to purchase. Since the court
found this assumption to be both “typical” and “relevant” (see iii. below), the
promisor was relieved of its duty to perform.12
iii. Relevance: The final and often most significant factor relates to what in Danish
theory is referred to as the “relevance” of the assumption concerned. In this
context “relevance” is a shorthand expression for the requirement that the court,
after having evaluated the above named factors (i. and ii.), as well as all other
relevant circumstances in the concrete case, finds it reasonable to assign the risk
of the failure of the assumption concerned to the promisee, i.e. with the result
that the promisor is relieved, in whole or in part, of its duty to perform. In this
respect it should be emphasized that not all assumptions classified as “typical”
in relation to the second condition (above) are also regarded as “relevant.” A
party who purchases a given claim against a third party will of course assume
that the third party will remain willing and able to pay, just as the purchaser will
also typically regard this assumption as material. But since courts do not regard
such an assumption as “relevant”, the purchaser remains liable to the seller even
if the third party proves to be unable to pay.13
As suggested by the foregoing examples, the value of this tripartite test for evalu-
ating the legal significance of a given failed assumption lies primarily in its identi-
fication of the main kinds of considerations which typically enter into the judicial
equation. So although this list might appear logical, clear and convenient, a court
asked to apply the doctrine of failed assumptions retains a considerable measure of
11
Andersen (2013), p. 401.
12
See UfR 2002.1031H, Ugeskrift for Retsvæsen (Danish Weekly Law Reports) 1031 (2002).
13
Andersen (2013), p. 402.
discretion involving an often complex and difficult evaluation of all relevant facts in
the concrete case.14
Within the present commercial hardship context, however, it is important to
emphasize that even sudden and irregular swings in exchange rates and other cycli-
cal factors are not ordinarily classified as “relevant” failed assumptions. Such events
generally fall within the sphere of clearly “foreseeable” risks impliedly undertaken
by any promisor who elects to engage in commercial activity.15 In commercial rela-
tionships a party assumes the risk that it will be capable of fulfilling its promise,
even though this later becomes more expensive or commercially less attractive.
Commercial contracting is an inherently “risky business,” and for that reason alone
Danish courts are loath to intervene in situations involving hardship, except in situ-
ations involving highly unusual circumstances involving gross disparity. And even
in these situations viable excuses for non-performance are few and far between.
For these reasons, the fact that a debtor faces difficulties in fulfilling its payment
obligation with respect to a given financial product, in particular because the finan-
cial institution upon which the debtor has relied proves unable to pay (or otherwise
fails to fulfil its obligation) is deemed to be a risk that the debtor must bear. For
example, if a given purchaser is unable to pay because the credit line that its bank
has promised to provide is terminated, such lack of funding does not constitute an
excuse for the debtor’s non-performance of its contractual obligations. This result
accords with the principle generally recognized in Danish law that a contracting
party must bear the risk of the solvency of its subcontractors. In that regard, no dis-
tinction is made between financial and other subcontractors.
The only exception to this principle which might apply in such a situation would
be in the event that the financial difficulty faced by the financial institution in ques-
tion is, at the time concerned, typical for other financial institutions in the relevant
market. But as stated in the introduction above, legislators will usually take steps to
avoid such breakdowns in the financial system. Therefore, the main rule in Danish
law is that the debtor should bear the risk that the particular financial institution it
has appointed might not be able to perform as agreed.
7.3.3 Frustration
In England, as well as in some other jurisdictions whose legal system derives from
English common law, the doctrine of “frustration” is a term of art often used to
designate contingencies which involve allegations of impossibility or (at least)
impracticability of performance.16 Within the Danish legal system, such contingen-
cies often fall with the heading of force majeure (see Sect. 7.3.5 below) and other
14
15
16
Regarding frustration under English law see generally e.g. Treitel (2007), Ch. 13.
clausula rebus variants, including the doctrine of “failed assumptions (Sect. 7.3.2
above).”17
Significantly, “mere hardship” is not sufficient under English common law to
discharge, or even partially discharge, performance of a commercial contract. In this
respect, the English doctrinal category of frustration accords with the prevailing
position of the Danish legal system as regards the above exceptions to the pacta sunt
servanda rule between commercial partners.
7.3.4 Wegfall der Geschäftsgrundlage
In German law the theory of Wegfall der Geschäftsgrundlage (disappearance of the

basis of the transaction) may – among other things – comprise the effect of changed
circumstances such as hardship. The doctrine derives from German court practice
and statutory law with respect to impossibility of performance (unmöglichkeit, as
embodied in Art. 275 of the German Civil Code: BGB).18
Apart from cases involving the galloping inflation after both World Wars, the
doctrine of Wegfall der Geschäftsgrundlage has been applied restrictively by
German courts, not least as regards commercial contracts.19 In this respect, this
German doctrinal category accords with the prevailing position of the Danish legal
system as regards exceptions to the pacta sunt servanda rule.
7.3.5 Force Majeure
Although Danish law has not formally adopted the principle of force majeure as
such, there are a few Danish analogues. Most prominent among these is Article 24
of the Danish Sale of Goods Act (Købeloven) which in unofficial English translation
provides as follows:
In a sale of generic goods, the seller is strictly liable in damages for delay unless
[the contract exempts him from liability, or] performance of the contract must be
deemed impossible by reason of circumstances not of such a nature that the seller
should have taken them into account at the time of the conclusion of the contract,
17
Regarding similarities and difference between these various doctrines see Lookofsky (1989),
p. 80ff.
18
The doctrine provides relief for cases where the original economic basis of the contract has
changed. When circumstances have unforeseeably and substantially changed, the foundations of
the transaction have been destroyed and the parties are no longer bound to their original contractual
commitments. Requesting the original performance of the contract in such circumstances would
constitute bad faith under Art. 242 BGB. See Liu (2005) Changed Contract Circumstances, avail-
able at http://www.cisg.law.pace.edu/cisg/biblio/liu5.html.
19
Liu (2005).
including [e.g.] accidental loss of all goods of the type or the bulk to which they
relate, war, import restrictions etc.
The rule in Article 24 applies only to merchant sellers of generic goods. For
example, if a merchant has promised to provide the buyer with “10 bales of Grade
A wheat” or “10 Lightning-model bikes”20 that seller will only be relieved of liabil-
ity for non-delivery if (a) performance of that generic obligation must be regarded
as virtually “impossible” and (b) the contingency leading to such impossibility was
“unforeseeable” at the time of conclusion of the contract. As indicated by the exam-
ples set forth in the statute itself, only highly unusual contingencies satisfy this lat-
ter requirement.21 See also Sect. 7.4 below.
Article 30 of the Sales Act provides for a similarly narrow exemption in cases
where a buyer who fails to perform its (inherently generic) obligation to pay.22 And
since performance of a payment obligation will rarely be prevented by circum-
stances which make payment impossible – i.e. factors (a) and (b) as set forth in the
rule applicable to sellers – pacta sunt servanda admits of few exemptions vis-à-vis
buyers. An example of such an exemption might be an unforeseeable governmental
restriction which prevents the buyer from making payment from a contractually
specified source. Regarding foreseeablity and impossibility see also Sects. 7.4.1 and
7.5.1 below.
Danish law recognizes the principle “impossibilia nulla est obligatio” to the
extent that a party who, by reason of unforeseeable impossibility, is exempted from
liability in damages is also exempted from its obligation to perform in natura.23 As
a condition for exemption from both specific performance and liability, “impossibil-
ity” may only be claimed as a defence under the exceptional circumstances set forth
under Sect. 7.5.1 below. The fact that performance as originally agreed has been
made more difficult, e.g. by a subsequent rise or fall in prices, will not serve to
relieve a party from its liability to perform and will therefore not exempt the debtor
from its obligation to perform in natura. Danish legal theory recognizes, however,
that a seller’s duty to perform certain obligations may be rendered “virtually impos-
sible” by a highly severe rise (or fall) in price. This phenomenon, whereby a party’s
duty to perform passes the so-called “sacrifice threshold” (offergrænsen), is some-
times referred to in the Danish literature as “economic force majeure.”24 There are,
however, no recent Danish court decisions which cast additional light on exactly
how this exemption might be applied in practice.
Given the fact that several other Danish statutes, as well as general conditions of
trade, authorize liability exemptions in circumstances similar to those authorized by
the Sales Act, it has been suggested in Danish legal literature that the principle of
20
For an analysis involving this example see Lookofsky (1989), p. 85 f.
21
See generally Lookofsky (1989), pp. 87 ff; See Lookofsky and Ulfbeck (2015), p. 181 ff.
22
See Lookofsky and Ulfbeck (2015), pp. 222–223.
23
See Lookofsky and Ulfbeck (2015), p. 210f. Andersen and Lookofsky (2015), p. 206f.
24
See Andersen and Lookofsky (2015), p. 210f; see also Lookofsky and Ulfbeck (2015), p. 149.
exemption of liability (and performance obligation) by reason of unforeseeable

impossibility is applicable to all contractual obligations.25
In this connection it should be emphasized that provisions which limit a seller’s
liability or duty to perform by reason of force-majeure are quite common also in
Danish contract practice.26 The recognition and enforcement of such clauses by
Danish courts illustrates that the doctrine of pacta sunt servanda (see Sect. 7.2
above) is a well-established principle of Danish law.
Even in those few situations where a seller or buyer is exempted from liability by
virtue of the abovementioned rules and principles, the liability exemption lasts only
so long as the contingency in question actually prevents performance by the obligor
as agreed.
7.3.6 Contract Interpretation Based on Parties’ Hypothetical

Intentions
Although Danish courts are reluctant to interpret the obligations of contracting par-
ties on the basis of their “hypothetical” intentions,27 Danish courts regularly inter-
pret the expressly stated obligations of a given contracting party in light of the
obligations typically incurred by contracting parties in similar circumstances. In
such cases it is presumed that the parties have intended the typical effect of their
ambiguous contract provisions. In a similar vein the intentions that parties can be
assumed to have had at the time of contracting can sometimes play a role in deter-
mining the exact scope and legal consequences of a given obligation. One example
(unrelated to a financial crisis) is provided by a case decided by the Danish Supreme
Court in 2000,28 where the Danish Royal Theatre had commissioned a Danish com-
poser to write the score for a new ballet. The composer was to receive both a fixed
honorarium and a royalty based on the number of actual performances. Later, when
the choreographer was unable to perform his obligation, the Theatre decided to
cancel the ballet and in this connection maintained that it did not owe the composer
any royalties. The composer then sued the Theatre, alleging that he was entitled to
a royalty calculated on the basis of a hypothetical number of performances. A
majority of the Supreme Court agreed that the composer should receive compensa-
tion in addition to the agreed (fixed) honorarium. To this extent the majority “sup-
plemented” the written provisions of the contract with implied provisions. Although
the reasoning by the majority accords with the Danish doctrine of “failed assump-
tions” (see Sect. 7.3.2 above), the outcome in this case can better be explained in
terms of the parties hypothetical intentions, in that the fixed honorarium agreed was
25
See Gomard and Iversen (2011), p. 56 f.
26
See Andersen (2015), pp. 418 ff.
27
See Andersen (2013), p. 340 f.
28
Ugeskrift for Retsvæsen 2000, p. 656 (Supreme Court).
far less that the (total) compensation which this composer had received in similar
contractual contexts.29
Although there are (as yet) no Danish precedents where the hypothetical inten-
tions of the parties have provided a rationale to adjust the contractually agreed com-
pensation payable to a party in a “financial hardship” situation, the precedent
established by the just-named (royalty) case suggests that a Danish court might
undertake such an adjustment if it were convinced that the hypothetical intentions
of the parties concerned spoke in favor of such a result.
7.3.7 Other Theoretical Basis: The Danish “General Clause”
The traditional Danish doctrine of “failed assumptions” has in recent decades been
overshadowed by the advent of Article 36 of the Contracts Act, often referred to as
the “General Clause.” This provision, which the Act categorizes as a rule of contrac-
tual “validity,” provides (in unofficial translation) as follows:
(1) A contract may be modified or set aside, in whole or in part, if its enforcement
would be unreasonable or contrary to principles of good faith and fair dealing.
[…]
(2) In making a decision under subsection (1) hereof, regard shall be had to the
circumstances existing at the time the contract was concluded, the terms of the
contract and subsequent circumstances.
Article 36 thus empowers a Danish court to relieve a contracting party of its duty
to perform a given contractual obligation – in whole or in part – if (full) enforce-
ment of that obligation would, in the court’s opinion, be unreasonable or contrary to
good faith.30 Among other things, this provision gives courts the power to amend an
obligation, the enforcement of which has become unreasonable by reason of subse-
quent circumstances.
To be sure, Article 36 was designed mainly to provide protection for consumers
against commercial parties whose contracts overreach. And yet, the General Clause
is properly characterized as a significant and distinctive feature of general Danish
contract law, in that the legislative history of the provision clearly indicates that also
parties in commercial relationships deserve protection against unfair contract terms,
and Article 36 has in fact been applied by courts in certain instances involving sub-
stantive unfairness in contracts between commercial parties.31
At least one such application involved a situation where subsequent circum-
stances had resulted in “financial hardship” (though not as a result of a “financial
crisis” as such). In this case the rental sum originally “fixed” under the terms of a
29
See Andersen (2013), pp. 341–342.
30
Regarding the general Danish principle which obligates contracting parties to observe principles
of good faith and fair dealing (loyalitetspligt) see Andersen and Lookofsky (2015), pp. 69 ff.
31
See Lookofsky (1998), pp. 496–498.
150-year-old land lease had been set as 10 Danish Kroner, whereas the market rate
in the interim had risen to 800 times that amount! Declaring that the original rental
had become “unreasonably low,” the court amended the price-term of the contract
to accord with the current market rate – this even though the contract itself con-
tained no provision as to subsequent adjustment of the original rental sum.32
The fact that the General Clause has thus been applied in a commercial context
to alleviate blatantly severe “financial hardship,” suggests that it may supplement
the substantive rule in Article 24 of the Sales Act (see Sect. 7.3.5 above).33 In this
way, both conceptions can serve to exempt an obligor from liability for failure to
perform as originally agreed,34 just as both rules reflect limited modifications of the
general pacta sunt servanda rule.35
7.4 Conditions for Application of Relevant Exceptions
7.4.1 Unforeseeability
Unforeseeablity constitutes a key component within the Danish doctrine of “failed

assumptions.”
Furthermore, as previously explained (see Sect. 7.3.5 above), unforeseeablity
constitutes a key component within the Danish doctrine which corresponds to “force
majeure.”
Thirdly, Article 36 of the Danish Contracts Act gives Danish courts the power to
amend, or declare invalid, contractual provisions, the enforcement of which have
become unreasonable by reason of subsequent (unforeseen) circumstances.
7.4.2 Extraordinary Circumstances
The possibility of a liability exemption pursuant to the Danish doctrine which cor-
responds to “force majeure” requires that the disadvantaged party who claims relief
can establish supervening impossibility by reason of highly extraordinary
circumstances.
32
See Andersen and Lookofsky (2015), p. 198.
33
See in this connection Lookofsky (2011), pp. 141–169.
34
See generally Lookofsky (2011), pp. 156 ff.
35
See generally Lookofsky (2005), p. 434.
7.4.3 No Obligation to Carry Risk of Crisis
A party to a contract must bear the risk of the solvency of its subcontractors. In that
respect, no distinction should be made between financial and other subcontractors.
The possible assignment of such a “risk” – as defined within the conception of “rel-
evance” – constitutes a key component within the Danish doctrine of “failed
assumptions.”
7.5 Exceptional Circumstances Which Could Justify Judicial

Intervention
7.5.1 Impossibility
Impossibility constitutes a highly significant component of the Danish doctrine

which corresponds to the doctrine of force majeure as known in other legal
systems.
7.5.2 Excessive Onerousness
The fact that performance as originally agreed has been made more difficult, e.g. by
a subsequent rise (or fall) in prices, will not serve to relieve a party from its liability
to perform pursuant to Article 25 of the Danish Sales Act. Danish legal theory rec-
ognizes, however, that a seller’s duty to perform can be rendered “virtually impos-
sible” by a highly severe rise (or fall) in price.
The concept of “excess onerousness” can also be said to constitute a key element
within Article 36 of the Danish Contracts Act, in that application of this rule of
validity – in particular, in a situation involving commercial “hardship” – requires
that it would be highly unreasonable (and thus onerous) to require performance of
the obligation in question as originally agreed.
7.5.3 Distortion of Contractual Equilibrium
The distortion of the original contractual equilibrium is a key element within Article
36 of the Danish Contracts Act. In a given situation involving commercial “hard-
ship” it might sometimes be unreasonable to require performance as originally
agreed if there is a severe distortion (alteration) of the contractual equilibrium.36
36
See UNIDROIT (2010) Article 6.2.2 which provides: “There is hardship where the occurrence of
events fundamentally alters the equilibrium of the contract either because the cost of a party’s
7.6 Legal Consequences
7.6.1 Contract Revision/Adjustment
Article 36 of the Danish Contracts Act empowers a Danish court to relieve a con-
tracting party of its duty to perform a contractual obligation, in whole or in part, if
full enforcement of that obligation would be unreasonable or contrary to good faith.
Article 36 also empowers courts to amend or revise a contractual obligation, the
enforcement of which has become unreasonable by reason of subsequent
circumstances.
7.6.2 Termination
A seller, buyer or other obligor can be exempted from liability under Danish law for
non-performance of a generic obligation due to “unforeseeable impossibility.” In
this connection Danish legal theory recognizes that an obligor’s duty to perform can
be rendered “virtually impossible” by a highly severe rise (or fall) in price, i.e. in a
situation involving “economic force majeure.”
Danish law recognizes the principle “impossibilia nulla est obligation,” and so a
party who, by reason of unforeseeable impossibility, is exempted from liability (in
damages) will also be exempted from its obligation to perform in natura. And if one
party, e.g. the seller, is in fact relieved of its obligations to pay damages and per-
form, the other party is clearly entitled to terminate, in that Danish law will not
require the payment of “something for nothing.”37
Danish law does not have specific provisions with respect to the effective date of
a given (court-ordered) contractual obligation (pursuant to one of the above named
legal rules and doctrines). The party who seeks to alter a contract would usually
present that wish to the other party together with an indication regarding the point
in time at which the alteration should take effect. Unless the parties then agree to
renegotiate the contract, the requesting party will have to present its request for
change to a court, including the point in time at which the change should be effected.
performance has increased or because the value of the performance a party receives has dimin-
ished, and (a) the events occur or become known to the disadvantaged party after the conclusion of
the contract; (b) the events could not reasonably have been taken into account by the disadvantaged
party at the time of the conclusion of the contract; (c) the events are beyond the control of the
disadvantaged party; and (d) the risk of the events was not assumed by the disadvantaged party.”;
see also Andersen and Lookofsky (2010), p. 193 f.
37
See Lookofsky (1989), pp. 83–84.
7.6.3 Renegotiation
Article 36 of the Danish Contracts Act authorizes courts to amend the provisions of
a contract, inter alia, in cases of hardship that cause an unreasonable imbalance
between the performances of each party. However, Danish law does not recognize a
duty to renegotiate. Therefore, a Danish court cannot compel contracting parties to
do so.38
7.6.4 Other Remedies
In consumer contracts, Article 22 of the Danish Law on Marketing

(“Markedsføringsloven”) provides that the Danish Consumer Ombudsman
(“Forbrugerombudsmanden”) shall supervise the way in which the rules and regula-
tions promulgated under the Act are fulfilled in the market. In this connection the
Act empowers the Consumer Ombudsman to require certain information from busi-
nesses, to engage in negotiations, to propose changes and (if necessary) to prosecute
claims (including criminal sanctions) against particular businesses in Danish courts.
The Act also empowers the Consumer Ombudsman to supervise the extent to
which Danish businesses live up to the “good marketing” provision in Article 1 of
the Act. In many cases “good marketing practice” goes hand in hand with the “rea-
sonableness” condition in Article 36 of the Danish Contracts Act (the General
Clause). Therefore, a commercial party who violates “good marketing practice” by
imposing unreasonable contract provisions to its customers may be subject to the
remedial provisions of the Danish Law on Marketing, i.e. in addition to the usual
(inter partes) contractual consequences of such behavior.
Financial institutions under inspection by the Danish Financial Supervisory
Authority (“Finanstilsynet”) are subject to particular good faith obligations under
Article 43, subparagraph 1, of the Danish Law on Financial Activity (“Lov om
Finansiel Virksomhed”) and accompanying executive orders.
7.6.5 Priority Between Remedies
The fact that the General Clause has been applied in a commercial context to allevi-
ate blatantly severe “financial hardship,” suggests that this general rule of contract
validity, as codified in the Danish Contracts Act, can serve as a supplement to the
substantive rule in Article 24 of the Sales Act (see head 7.3.7 above). In this regard,
there is no “priority between remedies.”
38
See in this connection Andersen and Lookofsky (2015), p. 196ff; compare UNIDROIT (2010)
Article 6.2.3.
7.6.6 Necessary to Apply to Court to Benefit from Remedies
In the event that one (disadvantaged) party claims to be entitled to remedial relief by
reason of “force majeure” or “hardship,” and the other party refuses to comply vol-
untarily, it is necessary for the disadvantaged party to apply to a competent court for
assistance.
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Lookofsky, J. 1989. Consequential Damages in Comparative Context. Copenhagen: Djøf.
Lookofsky, J. 1998. The limits of commercial contract freedom under the UNIDROIT
“Restatement” and Danish law. American Society of Comparative Law: XLVI, 496–498.
Lookofsky, J. 2005. Impediments and hardship in international sales in 25. International Review of
Law and Economics 434.
Lookofsky, J. 2011. Not running wild with the CISG. The Journal of Law and Commerce 29:
141–169.
Lookofsky, J., V. Ulfbeck. 2015. Køb - Dansk indenlandsk købsret, 4th ed. Copenhagen.
Treitel, G. 2007. Law of contract, 12th ed. London: Sweet & Maxwell Ltd.
UNIDROIT. 2010. Unidroit principles of international commercial contracts available at http://
www.unidroit.org/english/principles/contracts/main.htm
List of Cases
UfR 2002.1031 H, Ugeskrift for Retsvæsen (Danish Weekly Law Reports) 1031 (2002).
Ugeskrift for Retsvæsen, 2000, p. 656 (Supreme Court).
Chapter 8
Crises financières et contrats: le droit positif
français refuse la révision d’un contrat devenu
déséquilibré mais le projet de réforme
entr’ouvre la porte à l’imprévision
Rémy Cabrillac
Abstract When a contract becomes unbalanced because of un economic crisis,

French law refused to modify it: contract must be performed as it was conclude. But
this traditional solution could be change with the French drafts law of obligations
reform.
Les crises économiques qui secouent le monde contemporain ne peuvent rester sans
incidence sur le contrat,1 qu’il est devenu banal de qualifier, selon la formule célèbre
dont la paternité revient à Maurice Hauriou, d’acte de prévision.2 Le contrat dont
l’équilibre est bouleversé par un brusque et imprévisible changement des circon-
stances économiques doit-il continuer à s’appliquer ou le juge peut-il le résilier
voire l’adapter ?
Le droit français, d’une manière relativement isolée, privilégie traditionnelle-
ment la première solution (I), mais une solution différente est proposée par trois
projets de réforme du droit français des contrats récemment élaborés (II).
8.1 Les solutions de droit positif
La solution traditionnelle, l’intangibilité du contrat (A) connaît des atténuations (B).
1
Cf. les différentes contributions présentées in Les prévisions contractuelles à l’épreuve de la crise
économique, RDC 2010/1, p. 379 et s.
2
Lécuyer H (1999) Le contrat acte de prévision in: Mélanges F. Terré, Dalloz/Litec/PUF, p. 643.
R. Cabrillac (*)
Faculté de droit, Université de Montpellier, Montpellier, France
e-mail: remy.cabrillac@cegetel.net

138 R. Cabrillac
8.1.1 La solution traditionnelle: intangibilité du contrat
La solution française n’est pas inscrite dans le Code civil de 1804. La jurisprudence
a dû trancher dans une affaire célèbre, l’affaire Canal de Craponne.3 Deux conven-
tions ayant pour objet la fourniture d’eau destinée à alimenter des canaux d’irrigation
avaient été conclues en 1560 et 1567. Au cours du XIX ème siècle, se prévalant de
la dépréciation de la monnaie et de l’augmentation du coût de la main d’oeuvre,
l’entreprise exploitant le canal demanda une augmentation de la redevance. La Cour
de cassation censura les juges du fond d’avoir accueilli la demande: « dans aucun
cas il n’appartient aux tribunaux, quelque équitable que puisse leur paraître leur
décision, de prendre en considération le temps et les circonstances pour modifier les
conventions des parties et substituer des clauses nouvelles à celles qui ont été libre-
ment acceptées par les contractants ».
Cette solution repose incontestablement sur la sécurité juridique. L’arrêt se
retranche derrière le visa de l’article 1134 du Code civil, mais ce texte pourrait
également justifier une solution inverse : ce qui doit avoir force obligatoire, c’est le
contrat réellement voulu par les parties. Or, si les parties avaient prévu ce change-
ment de circonstances économiques, il est probable qu’elles n’auraient pas conclu
le contrat ou l’auraient conclu à des conditions différentes : appliquer le contrat tel
qu’il avait été conclu à l’origine ne respecterait pas la volonté des parties. En réalité,
au delà de cet argument de texte contestable, les juges ont d’abord voulu éviter
qu’un contractant de mauvaise foi puisse demander la révision d’un contrat dès que
celui-ci paraît moins intéressant pour lui. Ils ont également craint que la révision
n’appelle la révision : le contractant qui voit sa dette augmentée à la suite de la révi-
sion risque de demander une révision à son profit dans les contrats où il est lui-
même créancier d’une obligation de somme d’argent.
Un autre argument implicite, propre au droit français, a longtemps justifié
l’intangibilité du contrat, la méfiance envers le juge. La crainte de « l’équité des
Parlements » dont il valait mieux se garder s’est pour le moins estompée et pourrait
laisser place à un rôle plus important du juge, qu’il ne s’est pas privé de s’arroger
par ailleurs dans bon nombre d’autres questions fondamentales du droit des
contrats.
Mais l’intangibilité du contrat heurte la souplesse contractuelle: maintenir
l’exécution du contrat tel qu’il a été conclu pourrait se révéler fâcheux alors que les
contrats de longue durée se multiplient.
Ces inconvénients expliquent les limitations apportées à la solution
traditionnelle.
3
Civ., 6 mars 1876, D. 1876, 1, 193, note Giboulot in Capitant et al. (2008), n° 165.
8 Crises financières et contrats: le droit positif français refuse la révision… 139
8.1.2 Les atténuations apportées à la solution traditionnelle
La jurisprudence administrative française a sans doute été une des premières à don-
ner des signes avant-coureur d’une possible évolution. Si le Conseil d’Etat a admis
depuis longtemps l’imprévision dans l’arrêt Gaz de Bordeaux,4 cette décision se
fondait essentiellement sur la nécessité d’assurer la continuité du service public,
fondement qui semblait exclure toute contagion aux contrats de droit privé. Mais le
Conseil d’Etat a infléchi plus récemment sa position, considérant que le concession-
naire peut, alors même que la concession a pris fin, faire jouer la théorie de
l’imprévision comme élément de règlement de la situation définitive : l’admission
de la théorie de l’imprévision ne semble plus reposer sur la seule idée de continuité
du service public mais également sur le droit du contractant à un équilibre financier,5
nouveau fondement susceptible de s’épanouir en droit privé.
Dans la jurisprudence judiciaire, plusieurs arrêts, à la portée incertaine, sont
intervenus, semblant déroger à la solution traditionnelle.
Dans le célèbre arrêt Huard du 3 novembre 1992, la chambre commerciale de la
Cour de cassation a ainsi condamné un contractant à payer des dommages et intérêts
à son partenaire auquel il avait refusé la révision d’un contrat le conduisant à la
ruine.6 Il est vrai que l’arrêt ne reconnaît pas expressément au juge un pouvoir de
révision, se bornant sur la base du principe d’exécution de bonne foi des conven-
tions inscrit dans l’article 1134 alinéa 3 du Code civil à sanctionner une faute
contractuelle.
Dans une autre décision,7 la Cour de cassation a semblé à certains auteurs sug-
gérer que l’obligation de loyauté et d’exécution de bonne foi entraînait un devoir de
renégocier une convention déséquilibré par une modification imprévue des circon-
stances économiques, la Cour ayant rejeté le pourvoi contre la décision des juges du
4
CE 30 mars 1916, Recueil Dalloz 1916, 3, 25, S. 1916, 3, 17.
5
CE 12 mars 1976, Actualité juridique de droit administratif 1976, 528 et 552, concl. Labetoulle
D. Cf. Guettier C (2004) Droit des contrats administratifs, PUF, Thémis, 3 ème éd., n° 579 et s.
Ad.: Bucher CE (2011) L’inexécution du contrat de droit privé et du contrat administratif. Etude
de droit comparé interne. nouvelle bibl. thèse, vol. 102, Dalloz, n° 237 et s.
6
Bull civ., IV, n° 338; JCP 1993.II.22164, note Virassamy G (1993) Revue trimestrielle de droit
civil 124, obs. Mestre J. (exploitant d’une station service qui ne pouvait plus être compétitif du fait
des prix du carburant imposés par son fournisseur exclusif). Dans le même sens, Com. 26 oct.
1999, D. 2000.224, note Aynès L (2000) JCP II.10230, note Casey J.; Nancy, 26 sept. 2007, D.
2008.1120, obs. Fauvarque-Cosson B et Amrani-Mekki S (2008) RTDCiv. 295, obs. Fages B. qui
ajoute qu’en cas d’échec des négociations, la cour serait en mesure « d’apprécier la responsabilité
des parties dans le rejet des propositions adverses et de sanctionner un abus éventuel par le verse-
ment de dommages et intérêts ». Ad. Cachard O (2008) L’ombre de la révision judiciaire du con-
trat, RLDC n° 49.
7
Civ., 1re, 16 mars 2004, D. 2004.1754, note Mazeaud D (2004) RTDCiv. 290, obs. Mestre J
(2004) JCP I.173, obs. Ghestin J.
140 R. Cabrillac
fond au motif que le déséquilibre existait dès la naissance du contrat.8 Mais cette
interprétation a engendré une vive controverse.9
Dans un arrêt plus récent dont il est difficile encore d’apprécier toute la portée,
la chambre commerciale de la Cour de cassation a censuré une cour d’appel qui
avait condamné en référé un contractant à exécuter une de ses obligations « sans
rechercher, comme elle y était invitée, si l’évolution des circonstances économiques
et notamment l’augmentation du coût des matières premières… n’avait eu pour
effet de déséquilibrer l’économie du contrat tel que voulu par les parties lors de sa
signature en décembre 1998 et de priver de toute contrepartie réelle l’engagement
souscrit ».10 La généralité comme l’élégance de la formule pourrait indiquer un arrêt
de principe ouvrant la voie à l’abandon de la jurisprudence Canal de Craponne.11
Mais l’absence de publication de cet arrêt rendu en formation restreinte, tranchant
une question de procédure civile concernant la compétence du juge des référés,
incite à plus de prudence.12
Ces fissures semblent toutefois insuffisantes à faire céder les solutions tradition-
nelles. La jurisprudence Canal de Craponne est régulièrement réaffirmée par les
tribunaux français.13
Des bouleversements plus importants sont proposés par les projets de réforme.
8.2 Les solutions des projets de réforme
Les trois projets de réforme français, l’avant-projet de réforme du droit des obliga-
tions et de la prescription initié et conduit par le professeur Pierre Catala sous
l’égide de l’Association Henri Capitant,14 et le projet préparé sous la direction du
professeur François Terré dans le cadre de l’Académie des sciences morales et
politiques,15 envisagent, quoique de manière sensiblement différente, de consacrer
l’imprévision.
8
Mazeaud D, note citée.
9
Ghestin J (2004) L’interprétation d’un arrêt de la Cour de cassation D. 2239. Ad. Benabent A
(2005) Dalloz ou Dallas, D. 852.
10
Com. 29 juin 2010, D. 2010, 2481, note Mazeaud D, 2485, note Génicon T (2011) RDC 34, obs.
Savaux E (2011) Defrénois, art. 39229, n° 4, obs. Seube JB.
11
En ce sens, Mazeaud D, note citée.
12
En ce sens, Génicon T, note citée.
13
Cf. par exemple récemment Civ., 3e, 18 mars 2009, RTDCiv. 2009.235, obs. B. Fages (2010) D.
235, obs. Fauvarque-Cosson (le preneur, en complément d’un faible loyer, s’était engagé à veiller
sur le bailleur âgé et dépendant. Après le décès de ce dernier, les héritiers du preneur ne peuvent
demander une augmentation de loyer).
14
Avant-projet de réforme du droit des obligations et de la prescription (dir. P. Catala), La docu-
mentation française, 2005. Ad., pour une présentation comparatiste, Regards comparatistes sur
l’avant-projet de réforme du droit des obligations et de la prescription, dir. Cartwright J,
Vogenhauer S et Whittaker S (2010) Soc. lég. comp. vol. 9.
15
Pour une réforme du droit des contrats, Dalloz, Thèmes et commentaires, 2009.
Le Ministère de la justice a présenté en Conseil des ministres le 27 novembre

2013 un projet de simplification et de modernisation du droit comportant en particu-
lier une réforme du droit des contrats qui devrait intervenir par ordonnance. Une loi
du 16 février 2015 a habilité le gouvernement à réformer par ordonnance le droit
des contrats, le régime de l’obligation et le droit de la preuve. Le texte relatif à
l’imprévision ouvre la voie à une modification du droit français (art. 1196). Ce texte
ne devrait pas être sensiblement modifié et devrait entrer en vigueur courant 2016
ou début 2017.
Certains textes présentent la révision comme une dérogation, rappelant que le
principe est la force obligatoire du contrat, même si l’exécution est devenue plus
onéreuse. L’article 92 al. 1 du projet Terré dispose en ce sens que « Les parties sont
tenues de remplir leurs obligations même si l’exécution de celles-ci est devenue
plus onéreuse ».
Au delà, si les trois projets imposent aux parties de renégocier le contrat, ils
divergent sur le contenu (A) et la sanction (B) de cette obligation de renégociation.
8.2.1 Le contenu de l’obligation de renégocier
Dans l’hypothèse où un contrat est devenu déséquilibré suite à un bouleversement

des circonstances économiques, les projets imposent aux parties une obligation de
renégocier dont les conditions comme les modalités varient.
Le projet Terré et le projet de la Chancellerie exigent dans une formulation très
voisine, inspirée du projet Lando, la réunion de deux éléments pour que le juge
puisse intervenir. Le premier est un changement des circonstances qui doit être «
imprévisible » et dont une partie « n’avait pas accepté d’en assumer le risque ». Le
second réside dans un déséquilibre contractuel résultant de ce changement de cir-
constances : la formule précisément retenue est une exécution devenue « excessive-
ment onéreuse » (art. 1196 du projet de la Chancellerie; art. 92 al. 2 du projet Terré),
expression empruntée au droit italien (art. 1467 C.civ. italien) via le projet Lando
(art. 6:111 (1)).
Le projet Catala retient une approche différente, il se borne à une référence à «
l’effet des circonstances », exigeant que celui-ci ait entraîné une perturbation de
l’équilibre initial au point qu’une partie perde son « intérêt dans le contrat » (art.
1135-1 C.civ.), condition plus rigoureuse que celle posée par les deux autres
projets.16
Les modalités de cette obligation de renégociation du contrat sont appréhendées
de manière sensiblement voisine. Cette renégociation doit être menée de bonne foi,17
mais seul le projet Catala rappelle expressément cette exigence (art. 1135-3 al. 3).
16
Cf. Catala P (2008) La renégociation des contrats in: Mélanges P. Didier, Economica, p. 97: «
l’avant-projet s’écarte du critère dominant de « l’onérosité excessive » qui est apparu technique-
ment moins précis ».
17
Cf., en présence d’une clause de renégociation, Com. 3 oct. 2006, D. 2007.765, note Mazeaud D.
142 R. Cabrillac
La renégociation ne doit pas être conduite avec l’intention de ne pas aboutir. Elle
doit s’inscrire dans un délai raisonnable (cf. projet Terré art. 92 al. 3). Les parties
doivent en principe continuer à exécuter le contrat pendant les négociations (art.
1196 du projet de la Chancellerie). Le non respect de cette obligation de bonne foi
ne semble devoir entraîner que le versement de dommages et intérêts (cf. art. 1135-3
al. 2 du projet Catala).
A l’issue de ces négociations, si les parties se mettent d’accord pour résilier le
contrat ou le poursuivre à des conditions nouvelles, cet accord s’impose à elles. A
défaut d’accord, il convient alors de s’interroger sur la sanction du non respect de
cette obligation de renégociation.
8.2.2 La sanction de l’obligation de renégocier
Une première possibilité est de permettre à chaque partie de résilier le contrat, pos-
sibilité qui sera en pratique utilisée par la partie victime du déséquilibre. C’est la
solution retenue par le projet Catala (art. 1135-3 al. 2), et ce, dans le silence du texte,
que le contrat soit à durée déterminée ou indéterminée. On peut donc constater que
le projet Catala traduit une évolution importante par rapport à notre droit positif qui
ne prévoit que la continuation du contrat originaire, tout en restant fidèle à la tradi-
tionnelle méfiance du droit français vis à vis du juge, lui refusant le pouvoir de
s’immiscer directement dans le contrat qui doit rester la chose des parties.18
L’extinction du contrat se produit « sans frais ni dommage », chacune des parties
étant simplement déliée de son engagement. La menace de la disparition du contrat
pourra ainsi constituer un moyen de pression sur le contractant bénéficiant du
déséquilibre pour qu’il accepte des concessions au profit de son partenaire.
Le projet Terré comme le projet de la Chancellerie vont au delà, en harmonie
avec le projet Lando ou la grande majorité des droits admettant l’imprévision, en
accordant au juge un pouvoir important en cas d’échec de la renégociation, ce qui
constitue la principale divergence avec le projet Catala et une évolution fondamen-
tale par rapport au droit positif.
Le projet de la Chancellerie subordonne le principe d’une adaptation à l’accord
des parties; à défaut une partie pourra demander au juge de mettre fin au contrat, le
laissant libre d’en fixer la date et les modalités (art. 1196 al. 2). Le projet Terré, en
harmonie avec le projet Lando (art. 6:111 (3)), place les deux branches de l’option,
adaptation ou résiliation, sur un pied d’égalité, permettant au juge d’intervenir sans
l’accord préalable des parties (art. 92 al. 3).
Les pouvoirs reconnus au juge en cas d’adaptation sont également appréciés dif-
féremment par le projet de la Chancellerie et le projet Terré.
Le premier laisse une totale liberté d’appréciation au juge. La lecture de l’article
1196 alinéa 2 semble n’exiger, comme nous venons de l’indiquer, qu’un accord
18
Catala P., art. cit., p. 91.
préalable des parties sur le principe de l’adaptation, sans qu’elles aient à se prononcer
sur les modalités de cette adaptation.
Le projet Terré précise que le juge peut adapter le contrat « en considération des
attentes légitimes des parties » (art. 92 al. 3). Cette consécration de la théorie des
attentes légitimes perme tune adaptation subjective : le juge va s’efforcer d’apprécier
ce qu’auraient voulu les parties si elles avaient eu connaissance du bouleversement
des circonstances et ce que chacune pourrait légitimement attendre comme nouvel
équilibre contractuel. Cette appréciation, conforme au rôle reconnu à la volonté
individuelle en droit français, présente l’inconvénient d’une certaine difficulté pour
le juge à supputer ce qu’aurait pu ou ce que pourrait être la volonté des parties.
L’assouplissement du droit français de l’imprévision semble souhaitable, moins
au nom de la justice contractuelle que d’une nécessaire souplesse contractuelle.
Il reste que la souplesse contractuelle ne peut vraiment que découler des parties.
La rigidité actuelle de la position jurisprudentielle française, fonctionnant comme
une règle supplétive répulsive, que les parties seraient incitées à écarter,19 devrait
inciter les contractants à adopter une clause de révision du contrat.20 La pratique
recourt fréquemment aux clauses de hardship ou aux clauses d’indexation. Le droit
français s’est récemment inspiré de la pratique anglo-saxone pour importer la clause
de benchmarking, qui permet aux parties de s’assurer qu’elles bénéficieront des
meilleures conditions tout au long de l’exécution du contrat,21 ou la MAC clause
(material adverse change), qui permet à un contractant de se dégager d’une opéra-
tion contractuelle en cas d’évènement défavorable affectant la rentabilité de cette
opération survenant entre sa conclusion (signing) et sa réalisation (closing).22 Le
plus souvent, le régime de ces clauses est abandonné à la liberté contractuelle,23
offrant une large palette de combinaisons à l’imagination des rédacteurs de contrats.
Ainsi s’explique la formule de l’article 1135-1 du projet Catala qui invite les parties
à prévoir ce genre de clause, texte qui pourrait paraître superfétatoire au regard de
la liberté contractuelle. Malgré quelques imperfections de détail, l’article 1196 du
projet d’ordonnance nous semble réaliser un compromis satisfaisant entr’ouvrant la
porte à la révision judiciaire d’un contrat devenu déséquilibré sans menacer la sécu-
rité juridique.
19
Selon Pérès C, La règle supplétive, n° 588 (cf. Terré, Simler et Lequette (2013) Les obligations,
Dalloz, 11 ème éd., n° 471).
20
Cf. Lequette Y (2010) De l’efficacité des clauses de hardship in: Liber amicorum C. Larroumet,
Economica, 267 s.
21
Szuskin L et Juhan JL (2004) La clause dite de benchmarking dans les contrats de prestation de
services ou comment rendre un contrat compétitif ?, RLDC déc. 2004, n° 11, p. 5 s.
22
Pélissier AC (2006), La MAC clause, RLDC avr. 2006, n° 26, p. 5 s.
23
Comp. Paris, 24 mai 2005, cité par A.-C. Pélissier, art. cit., qui refuse d’appliquer une MAC
clause en faisant valoir que le demandeur avait disposé de toutes les informations utiles pour
prévoir l’évolution de la dette de la société achetée.
Chapter 9
Financial Turmoil as a Change
of Circumstances Under Greek Contract Law
Nikolaos A. Davrados
Abstract The country’s uncomfortable economic climate has prompted legal

scholars and the courts to revisit the doctrine of unforeseen circumstances (rebus sic
stantibus) as a valid basis to revise binding obligations of preexisting contracts.
Whereas the Greek civil code was one of the first modern codes to contain a provi-
sion specifically devoted to this issue, courts appear to be somewhat reluctant to
apply this provision directly and resort instead to an objective good faith test when
entertaining cases of debtors who are unable to perform. The plurality of the reported
cases concerns private lessors who request a judicial adjustment to their rent. On the
other hand, the legislature has enacted special laws dealing with debts from private
bank loans to consumers. While the courts and the legislature are approaching this
issue in a seemingly piecemeal fashion, legal doctrine could also look at the revival
of an even older discussion, that of total or partial impossibility to perform a mon-
etary obligation.
9.1 Introduction
This fifth consecutive year of recession and austerity for Greece finds the country
with an economy shrunk by more than a quarter, an unemployment rate close to
30 %, and an unchanged value of its currency, the euro, from inception. Economists
This paper was submitted as the Greek National Report in the XIXth Congress of the International
Academy of Comparative Law (Vienna 2014). The author has endeavored to state the law as on 1
June 2014.
N.A. Davrados (*)
Loyola University New Orleans, College of Law, New Orleans, Louisiana, USA
University of Nicosia, Department of Law, Nicosia, Cyprus
University of Athens, School of Law, Athens, Greece
e-mail: davrados@loyno.edu

146 N.A. Davrados
would identify this snapshot as a case of ‘internal devaluation’.1 In oversimplified

terms, and for the purposes of the discussion that follows, this means that the aver-
age Greek debtor’s patrimony has diminished in value, either gradually or
abruptly.2
In such a case, it may follow that this diminution could impair the average debt-
or’s ability to fulfill financial obligations stemming from agreements entered into
prior to such devaluation.
This paper attempts a succinct exposition of the Greek civil law3 on this issue.4
1
See Barkbu et al. (2012), p. 422 et seq.
2
In theory, internal devaluation also involves a corresponding drop in the prices of goods and ser-
vices. See, e.g., Armingeon and Baccaro (2012), p. 254 et seq. This attribute, however, has not yet
been observed in Greece’s case, where salaries have plunged but prices have not.
3
Analysis will be made with reference to the provisions of the Greek Civil Code (hereinafter also
referred to as ‘CC’), which was promulgated in 1940, and entered into force in 1946. See Georgiadis
(2012), p. 95 et seq. [in Greek], with further references.
4
The analysis that follows will therefore concentrate on the ‘Greek financial crisis’ through a civil
law lens and shall avoid any discussion with respect to the nature, character, or cause of the broader
issue of the sovereign debt crisis. For such an analysis from a Greek viewpoint, the reader may turn
to Chrysogonos (2012), p. 1353 et seq. [in Greek]; Katrougalos (2010), p. 157 et seq. [in Greek];
Pavlidis (2006), p. 124 et seq.; Kostopoulou (2013), p. 34 et seq. [in Greek]; Alexandridou (2010),
p. 132 et seq. [in Greek]; Moustaira (2007), p. 141 et seq. [in Greek]; Studies on the Memorandum
of Greek debt (2012), p. 2641 et seq. [in Greek]. For further analysis and international overview of
sovereign debt and default, see also Borchard and Wynne (1951), Wynne (1951), Panizza et al.
(2009), p. 651 et seq., Lienau (2008), p. 63 et seq. (supporting an international regulation of the
concept of sovereign debt and default), Boudreau (2012), Wright (2010) passim, Tsoukala (2013),
p. 241 et seq., Metallinos (2013), p. 19 et seq. (describing the recent haircut of Greek bonds under
a collective agreement scheme), International Monetary Fund (2003) Reviewing the process for
sovereign debt restructuring within the existing legal framework. IMF, Washington D.C., passim,
Krueger (2002) passim (proposing the promulgation of an international regulation dealing with
sovereign default), Krugman (1985) passim, Husain and Diwan (1989) passim, Ochoa (2008),
p. 109 et seq., Spector (2009), p. 771 et seq., Sachs (1999), p. 377 et seq., Liendo (2007), p. 107
et seq. (proposing the insertion of an express or inherent restructuring debt-restructuring prerequi-
site to any assertion of sovereign immunity).
9 Financial Turmoil as a Change of Circumstances Under Greek Contract Law 147
9.2 Unforeseen Change of Circumstances
9.2.1 The Rule of Article 388 of the Greek Civil Code
Like most of the world’s legal systems, Greek contract law recognizes the primacy
of the principle of pacta sunt servanda5 and vests the power of a legal bond (vincu-
lum juris6) in a valid contract.7 As a rule, therefore, the debtor is held liable for a
failure to perform and may be excused from such liability only on very narrow and
strict grounds of complete lack of fault, as prescribed in the law.8
When the negotiating parties reach an agreement on the terms of their contract,
it is evident that they are acting within a given and present legal, economic, and
social milieu, of which they are or should be fully aware, and to which they nor-
mally do not envisage or foresee any serious and sudden deterioration or disarray. In
other words, the structure of a bilateral juridical act is erected on the foundation of
the parties’ bona fide common understanding of the surrounding circumstances at
the time of contracting. If these circumstances were to change suddenly and subse-
quent to the formation of the contract, it would follow that the foundation of the
parties’ consent would also fail. Although traditional contract law attaches legal
consequences to the fortuitous destruction of the object of the contract under the
theory of ‘contractual risk’,9 under the principle of pacta sunt servanda, it is clear
that a ‘change in circumstances’ would not necessarily qualify as an excuse from
performing, moreover as an occurrence warranting a revision of the contract.
The need for an exception to this inflexible rule became apparent very early in
the Greek jurisprudence and formed the basis for the enunciation of a very progres-
sive rule for its time,10 Article 388 of the Greek Civil Code on ‘unforeseen change
of circumstances’, which reads as follows:
5
Sharp (1941), p. 792, McNair (1940), p. 173 et seq.
6
Corpus Juris Civilis, Institutes 1.3.13 (“Obligatio est juris vinculum quae necessitate adstringimur
alicuius solvendae rei secundum nostriae civitatis juris”).
7
See Sourlas (1949) in Litzeropoulos, et al. eds. Commentary to the civil code (hereinafter referred
to as ErmAK), paras 64 et seq. [in Greek]; Tsirintanis in: ErmAK, Article 287 CC, paras 8 et seq.
[in Greek]; Stathopoulos (1979) in Georgiadis and Stathopoulos Article 287 CC paras 24 et seq.
[in Greek]; ibid, Article 361 CC paras 3 et seq. [in Greek].
8
See Stathopoulos in: Georgiadis and Stathopoulos, Article 336 CC, paras. 2 et seq.
9
See, e.g., Jacoby (1972), p. 343 et seq., Sealy (1972), p. 255 et seq.
10
Article 388 of the Greek Civil Code was one of the very first provisions articulating an exception
to the binding force of contracts in the event of unforeseen change of circumstances as a matter of
positive law. Historically it was only preceded, though not directly influenced, by the Polish Code
of Obligations of 1933 in its Article 269. See, in more detail, Stathopoulos (2004), pp. 23–24, 1225
[in Greek]. Today, similar provisions have found their way into the text of modern national codes
and international conventions. For example, Article 79 CISG [on which see Stoll and Gruber
(2005) Article 79 in: Schlechtriem and Schwenzer paras 43 et seq.; Huber and Mullis (eds) (2007),
p. 257 et seq.; Tallon (1987) in Bianca and Bonell (eds), pp. 572–595; Marcantonio (1985), p. 41
et seq.]; Articles 6.2.1–6.2.3 of the Unidroit Principles of International Commercial Contracts
(2010) on ‘hardship’ in performing an obligation arising from a commercial contract [see, in detail,
148 N.A. Davrados
If, having regard to the requirements of good faith and business usages, the circumstances
on which the parties had based the conclusion of a bilateral contract have subsequently
changed on exceptional grounds that could not have been foreseen and the performance due
by the debtor taking also into consideration the counter-performance has as a result of the
change become excessively onerous, the Court may at the request of the debtor and accord-
ing to its appreciation reduce the debtor’s performance to the appropriate extent or decide
the dissolution of the contract in whole or with regard to its performed part.
If the dissolution of the contract has been decided, the obligations to perform arising there-
from shall be extinguished and the contracting parties shall be reciprocally obligated to
restitute the performances by which each benefited pursuant to the provisions governing
enrichment without cause.11
From a cursory glance at the text of the article itself, and the early Greek legal
doctrine on this issue,12 it becomes readily apparent that the redactors of this codal
provision were influenced by various legal theories of that time. Article 388 CC is
thus a fine blend of the Roman maxim of rebus sic stantibus, the German version of
the subjective will theory of contracts (and most notably the particular theory of the
‘foundation of the transaction’ – Geschäftsgrundlage), and an extended version of
the French objective theory of imprévision. However, it retains its unique identity as
a distinct legal provision, which has undergone extensive judicial and scholarly
gloss since its enactment and has occupied the spotlight of modern legal discussion
in Greece for obvious reasons.
Article 388 CC is also one of the more verbose provisions in the Greek Civil
Code. The prerequisites for its application are spelled out in a rather self-explanatory
fashion. These prerequisites are briefly outlined as follows:
(a) This provision applies to bilateral or synallagmatic contracts, that is, agree-
ments where both contracting parties owe a performance as debtor and are
entitled to a correlative counter-performance as creditor. Unilateral contracts
(such as suretyship, loan without interest) or unilateral juridical acts (such as
testamentary dispositions of property) are thus excluded from the ambit of
application of this provision.
From the general wording of the provision, it may be deduced that all bilat-
eral contracts are included. However, a more faithful to the original maxim of
rebus sic stantibus13 interpretation of this provision will reveal that only con-
tracts providing for successive acts of performance over a future period of time
must be understood as subject to the implied condition that the circumstances
Scherer (2010), p. 219 et seq; Perillo (1997), p. 5 et seq.; for a comparative analysis of the notion
of ‘hardship’ see Karampatzos (2005), p. 109 et seq.]. For a more analytical comparative approach
see Hondius and Gricoleit (eds) (2014) passim.
11
Translation of the provision taken from Taliadoros (2000) with minor alterations.
12
See, e.g., Sakketas (1949) in: ErmAK, Article 388 CC , with further references to seminal
German and French works, such as Krückmann (1918), Windscheid (1850), Oertmann (1921),
Voirin (1922), Demogue (1931).
13
It is noteworthy that the words rebus sic stantibus are just the core of a maxim, the full text of
which is: “contractus qui habent tractus succesivum et dependentiam de futurum, rebus sic stanti-
bus, intelligentur” (Corpus Juris Civilis, Digest 4.4.8).
will remain the same. This interpretative proposition can be readily understood
in the light of the fact that contracts of long duration, such as lease contracts,
differ greatly in purpose and structure from contracts calling for instantaneous,
immediate, or simultaneous performance by the parties, such as most cases of
sales contracts.14 But, even if the approach reflected in the full text of the maxim
is not followed, it would still be difficult to contemplate a situation whereby a
sudden change of circumstances would ensue within the marginal time window
between agreement and performance in an instantaneous contract of sale.
(b) There must be a change of circumstances on which the parties had based the
conclusion of a bilateral contract, having regard to the requirements of good
faith and business usages.
The first limb of the test is to determine the subjective common understanding
of the parties with respect to the existing circumstances at the time of their agree-
ment.15 The parties’ perception of reality may obviously differ, and the underlying
cause or desire of each party will normally play no decisive role with respect to
the enforceability of the contract unless this underlying cause was communicated
to the other party or was incorporated as a term or condition in the contract. From
the varying desires of each individual party, a careful selection must be made of
those subjective common elements that constitute the foundation of the contract.
The second limb of the test is an objective one. The abovementioned com-
mon foundation of the contract is further confined to circumstances upon which
bona fide contracting parties would normally and objectively structure their
bilateral juridical relationship.16 The value of currency, taxes and duties, lawful-
ness of the object of the contract, weather conditions at the place of perfor-
mance, and war would qualify as such circumstances. Depending on the nature
of the contract, certain personal qualities and features of the debtor’s person
may also be taken into account.
(c) This change of circumstances must take place after the formation of the con-
tract.17 If the circumstances had changed prior to the perfection of the contract
and the parties knowingly entered into the contract nevertheless, it is clear that
any plea for subsequent protection under this provision would be moot.
If one or both parties labored under an erroneous perception of the existing
circumstances when entering into their agreement, that party or both parties may
14
See Efthymiou (1966), p. 96 et seq. [in Greek].
15
This is identified as the subjective Geschäftsgrundlage, according to German and Greek legal
doctrine. See Simantiras (1988) para. 916 [in Greek]. The German approach is further explained
by Horn (1992), p. 137 et seq.
16
In this respect, the provision clearly adopts a modified version of the French théorie de
l’imprévision.
17
Under Greek contract law, a contract is formed when acceptance of the offer is received by the
offeror (art. 192 CC). There seems to be disagreement in Greek legal doctrine as to whether the
provision will equally apply in cases of contracts under a suspensive condition, when the change
of circumstances occurs during the pendency of the condition. Some scholars place this situation
under the major premise of art. 388 CC, while others refer to the principle of good faith. See, in
more detail, Stathopoulos, (1979) in Georgiadis and Stathopoulos, p. 1234.
150 N.A. Davrados
at first seek to avail themselves of the protection afforded under the provisions of
error (mistake) in the declaration of their will. Pursuant to these provisions, only
a substantial error of fact or of law will vitiate consent of the contracting party
when the error is unilateral or of both contracting parties when the error is bilat-
eral (art. 140 CC18). An error is substantial when it refers to a point of great
importance in regard to the whole transaction and may also include certain fea-
tures and qualities of both the object and the subjects of the contract according
to good faith and business usages (arts 14119 and 14220 CC). When the error is
substantial, the contract is a relative nullity and may be rescinded accordingly
(arts 140, 15421 and 18422 CC). Therefore, an error of the parties as to the founda-
tion of the contract must be substantial under the above provisions.
However, as to this issue, the law of error contains a no less important excep-
tion: A unilateral error, of law or of fact, referring exclusively to the motivation
that prompted the will of the contracting party shall not be substantial (art. 143
CC23). The Greek Civil Code is notably silent for cases of bilateral error as to
the common motivation of the parties. It is broadly accepted that the subjective
‘foundation of the transaction’ (Geschäftsgrundlage) of the parties is akin, if
not tantamount, to their motive for entering into the contract. That is so because
the parties’ common perception of the existing or future circumstances, based
on which they formed their contract, is an implied and inherent term of their
mutual consent in their agreement.24 Therefore, if the contracting parties labored
under an error when commonly forming the foundation of their contract, it
18
Article 140 CC: “If in the course of the conclusion of a juridical act the declaration made by a
person does not accord due to a substantial error with his will such a person shall have the right
to claim the annulment of the juridical act”. Translation taken from Taliadoros (2000) with minor
modifications.
19
Article 141 CC: “An error is substantial when it refers to a point of such importance in regard to
the whole of the juridical act that if the person in error were aware of the true situation he would
not have committed the juridical act”. Translation taken from Taliadoros (2000) with minor
modifications.
20
Article 142 CC: “An error referring to the qualities of a person or a thing shall be deemed sub-
stantial if according to the agreement of the parties or to the requirements of good faith and busi-
ness usages such qualities are of such importance in regard to the whole transaction that if the
person in error were aware of the true situation he would not have committed the juridical act”.
Translation taken from Taliadoros (2000) with minor modifications.
21
Article 154 CC: “The annulment of a juridical act by reason of error, fraud or duress shall inter-
vene by a Court decision. Shall only have the right to claim the annulment the person who was in
error or defrauded or under duress and his heirs”. Translation taken by Taliadoros (2000) with
minor modifications.
22
Article 184 CC: “A voidable juridical act is assimilated after its annulment to a juridical act that
was null ab initio subject to the provisions relating to real rights acquired by third parties in virtue
of a contract that was voided”. Translation taken from Taliadoros (2000) with minor
modifications.
23
Article 143 CC: “Unless otherwise provided in the law an error referring exclusively to the moti-
vation that prompted the will shall not be substantial”. Translation taken from Taliadoros (2000).
24
See Bosdas (1971), p. 150 et seq. [in Greek]; Georgiadis (2012), p. 623 et seq.; Chouvardas
(1938) passim [in Greek].
would seem that such bilateral error is either not regulated at all by the provi-
sions on error or, by analogy, would not be characterized as substantial for the
purposes of the provisions of arts 140–143 CC. That is so because such an error
would concern their motive for entering into the transaction, which by law is
not considered a substantial error. Being cognizant of this gap in the law of
error, several Greek scholars have advocated the proposition that art. 388 CC
serves as a subtle counterpart to the provisions on bilateral error as to the motive
of the parties.25 It remains debatable whether the protection of art. 388 CC
should extend to those cases where there was no subsequent change of circum-
stances, or whether protection in such cases must be sought within the principle
of good faith.26
(d) The change of circumstances occurring after the formation of the contract must
be unforeseeable at the time the contract was made. This test is necessarily
objective, because it refers to the foresight of a reasonable contracting party and
to the measure of suddenness and frustration caused by the change in circum-
stances.27 This requirement does not, however, equate foreseeability to fortuity.
It simply entails any sudden and unpredictable change that the parties did not
and could not reasonably anticipate when entering into their agreement.28
(e) This unforeseen change of circumstances must bring about an excessive increase
in onerousness of performing the contractual obligation. In other words, the
balance of performance and counter-performance associated with the bilateral
and commutative contract must be disturbed to an extent that the obligation of
the one party has become extremely more burdensome when juxtaposed with
the corresponding counter-performance of the other party.29
(f) The debtor must not be in default. According to the general provisions on breach
of contract, risk for fortuitous deterioration or destruction of the contractual
object devolves upon the debtor who has been put in default for failure to per-
form.30 Based on these provisions, it has been argued that a defaulting debtor
25
It seems that bilateral error as to the foundation of the contract will be treated under this provi-
sion. Cases of unilateral error will normally be dealt with by the provisions of arts 140–143 CC,
unless the party’s unilateral error as to the foundation of the contract was known or should have
been known by the other party, as good faith would dictate. See Georgiadis (2012), p. 566 et seq.;
Spyridakis (1990), p. 1320 et seq. [in Greek]. The relationship between the law of error and that of
revision of the contract due to change in circumstances is obvious both in the civil and in the com-
mon law. It is noteworthy that at common law the doctrine of frustration of contract has been
identified as the ‘sister-doctrine’ to that of mistake. See Kull (1991), p. 1 et seq.
26
See Stathopoulos (2004), pp. 1235–1236, with further references.
27
See Theodoropoulos (1949) passim [in Greek].
28
A simple hypothesis of the parties as to a plausible change of circumstances or a thought thereof
does not necessarily mean that the parties foresaw a future change of circumstances, and will nor-
mally not displace the application of this provision. See Stathopoulos (2004), pp. 1237–1238, with
further references.
29
See Papanikolaou (1985), p. 940 [in Greek].
30
Article 344 CC: “During the period of his delay a debtor shall be responsible for any negligence.
He shall also be liable in respect of fortuitous events except if he can prove that the prejudice
152 N.A. Davrados
may not rely on the protection of art. 388 CC because that debtor has under-
taken the risk associated with delayed performance of the agreed prestation.
The validity of this conclusion, however, is questionable. Several scholars pro-
pose that the regulatory ambit of the provisions on breach of contract are neces-
sarily confined to the performance of the debtor and are not concerned with the
change of circumstances surrounding this performance. The same scholars
explain that prior to the enactment of the Civil Code, there was a regulatory
lacuna concerning the change of circumstances. This void, however, has now
been filled by art. 388 CC. Therefore, according to this opinion, even a default-
ing debtor may invoke the protection of this provision. However the default will
be taken into consideration by the court when exercising its sovereign interven-
tion in the failing contract.31 It would seem that the change in circumstances
must be the primary if not sole reason for the default.
(g) According to an older view, a waiver of the protection of Article 388 CC by the
parties in the form of an adverse agreement must not exist. The precise legal
nature of art. 388 CC as a suppletive (jus dispositivum) or mandatory (jus
cogens) rule of law was heavily debated in Greek legal doctrine. Today, the
prevailing view holds that art. 388 CC is a mandatory provision and that parties
may not beforehand derogate from the protection afforded by this rule of law.32
9.2.2 The Good Faith Exception/Substitution: Article 288

of the Greek Civil Code
Traditional Greek civilian doctrine33 holds that all of the aforementioned prerequisites
must be met in order for the exceptional rule of art. 388 CC to apply and displace
the binding effect of a contract.
As observed, there may be cases where these rigid prerequisites are not fulfilled
in their entirety; however, it would seem unfair to deprive the debtor of some protec-
tion against the harsh effects of pacta sunt servanda. For example, a sudden change
of circumstances may occur in a unilateral contract or in a bilateral contract of
immediate execution (e.g. a contract of sale), or this change may not be subsequent
would have resulted even if the undertaking were performed in time”. Translation taken from
Taliadoros (2000).
31
See Spyridakis (1978), p. 1016 et seq. [in Greek]; Balis (1960), para. 88 [in Greek];
Economopoulos (1972), p. 325 et seq. [in Greek].
32
See analytically Stathopoulos (2004), p. 1239, 1245 et seq. Naturally, the parties may waive their
right to invoke the protection of art. 388 CC after the change of circumstances has occurred.
Equally, the parties may agree on the precise content of a revision of their contract, as long as their
agreement would not constitute an unfair term in their contract. Such contractual practice has been
noticed with the insertion of ‘Material adverse change’ (MAC) clauses in financial agreements.
See, e.g., Berger and Filgut (2005), p. 253 et seq., Hopt (2009), p. 681 et seq., Kindt and Stanek
(2010), p. 1490 et seq.
33
See Sakketas (1949) in: ErmAK, Article 388 CC, para. 17.
but may exist unbeknownst to the parties at the time of contracting, or the provisions
of bilateral error may not afford the necessary protection in some cases where the
parties had not expressed the cause of their agreement.34
As initially agreed both in theory and in the courts, protection of the debtor in
these exceptional cases is provided through the application of the general principle
of good faith, as expressed in Article 288 CC, pursuant to which:
A debtor shall be bound to perform the undertaking in accordance with the requirements of
good faith taking also into consideration business usages.35
According to this traditional view, the principle of good faith would thus operate
as an extraordinary device that would complement the exceptional rebus sic stanti-
bus protection against the stringent effects of pacta sunt servanda when good faith
should so dictate.36 That is so because art. 388 CC was seen as a special expression
of the principle of good faith in cases of bilateral contracts of continuous
duration.37
This unison, however, between legal doctrine and the courts in treatment of the
good faith exception only lasted until 1982, when the Greek Supreme Court (Areios
Pagos) decided38 to enlarge the scope of application of art. 288 CC to the extent that
the good faith principle has now invaded the territory of the provision of art. 388 CC
and is applied to cases where art. 388 CC would normally apply. In other words, the
Areios Pagos reduced the doctrine of rebus sic stantibus to a single test of the prin-
ciple of good faith as enshrined in art. 288 CC and silently left out the consider-
ations of art. 388 CC in this simplified and unified examination. This procedural
stance is still heavily criticized by Greek legal doctrine.39
34
See Stathopoulos (1979), in Georgiadis and Stathopoulos, Articles 288 and 388 CC.
35
Translation of the provision taken from Taliadoros (2000).
36
See Papantoniou (1957), p. 74, 150 et seq. [in Greek], with further references.
37
See Stathopoulos (2004), p. 1225, with further references.
38
Areios Pagos (plenary session) decision no. 927/1982, published in Nomiko Vima (Athens Bar
Association Law Review) 1982: 214 et seq.
39
See Papanikolaou (2000), paras 216 et seq., 515 et seq. [in Greek]; Karampatzos (2006), paras
478 et seq. [in Greek]. A contrary view, in favor of the position of the courts, is expressed by
Liappis (2011), p. 15 et seq. [in Greek], and Mentis (2012), p. 116 et seq. [in Greek].
154 N.A. Davrados
9.2.3 Application of the Rule
Either under the more specific rule of art. 388 CC or by virtue of the general prin-
ciple of good faith as articulated in art. 288 CC, the judge has the power to revise
the contract in order to restore equilibrium in the relationship of the parties, or, in
more extreme circumstances, to extinguish the obligation altogether.40
It is widely accepted in Greek legal doctrine41 that the present financial crisis
constitutes an ‘unforeseen change in circumstances’42 with respect to those bilateral
contracts of continuous duration that were perfected prior to the crisis, the starting
point of which has been pinpointed in time by the courts in the year 2010.43 By
applying the general principle of good faith (art. 288 CC), and with some recourse
to the theory of rebus sic stantibus (art. 388 CC), the Greek courts have revised
private lease contracts (adjusting the lease in the range of 15 % or higher in some
circumstances), whereas in other cases, the courts have denied protection, either
because the contract was entered into after 2010 or because a case of significant
hardship was not proven by the plaintiff debtor.44
In its efforts to mitigate the harsh effects of the financial crisis, the Greek
legislature has enacted special laws that affect the binding force of contracts. These
laws could resemble a legislative rebus sic stantibus intervention. In particular, the
legislation on commercial leases has been revised to allow the lessor to terminate
40
See Theodoropoulos (1960) p 134 et seq. [in Greek]; Stathopoulos (2004) p 1241 et seq.
41
See especially Doris (2010), p. 19 et seq. [in Greek]; Kourakis (2010), p. 44 et seq. [in Greek];
Liappis (2012) passim [in Greek].
42
The same conclusion is reached by international commentators as well. See, e.g., Smith et al
(2009), Feissel and Gorn (2009), p. 1138 et seq.
43
This date is questioned by some scholars, who identified the actual nadir of the Greek economy
in the summer of 2012, when rumors of Greece’s imminent exit from the Eurozone wreaked havoc
in the financial markets. See Papadimopoulos (2012), p. 630 et seq. [in Greek], Albrecht (2012),
p. 1059 et seq.; Perry and Gelman (2012–2013), p. 479 et seq.; Buchheit and Gulati (2011) Greek
debt – The endgame scenarios www.ssrn.com [accessed 31 March 2014]. This, in turn, prompted
international law firms to circulate advice to clients on the legal repercussions of a forced change
of currency in a debt of a sovereign. See, e.g., Field Fisher Waterhouse (May 2012) The Eurozone
crisis and financial transactions – A comprehensive guide www.ffw.com [accessed 31 March
2014].
44
Professor Karampatzos of the Athens Law School has closely monitored the attitude of the Greek
courts toward the revision of contracts due to the financial crisis. He has detected a multitude of
cases where the courts have either reacted positively or negatively to the application of arts 288 and
388 CC. He further argues that the ensuing crisis has had devastating effects to the local economy
and that, under the principle of good faith, courts must act more generously in some cases of debt-
ors. See analytically Karampatzos (2013), p. 92 et seq. [in Greek], idem (2011) Commentary to
Greek jurisprudence. Nomiko Vima (Athens Bar Association Law Review): 2317 et seq. [in Greek]
(presenting cases of private leases); idem (2012), p. 430 et seq. [in Greek]; idem (2013), p. 92
et seq. [in Greek] (commenting on cases concerning commercial leases); idem (2012), p. 294
et seq. [in Greek] (commenting on the consequences of the haircut of Greek sovereign debt); idem
(2010), p. 76 et seq. [in Greek].
the contract in cases of unforeseen financial hardship.45 Furthermore, by virtue of

special legislation intended to relieve heavily indebted debtors of private and com-
mercial loans, Greek law for the first time embraced the notion of bankruptcy of a
private individual,46 a legal concept that was rejected by traditional Greek insol-
vency law.47
Having been struck by one of the most severe financial blows in the country’s
latest history, the Greek courts have timidly shown some willingness to revise
mainly private lease contracts, while there has been no record of an active judicial
intervention in other types of contracts. The Greek parliament has also enacted
specific laws aimed at soothing the over-indebted consumer population in cases of
private loans.
Perhaps one would justifiably expect a bolder intervention, especially if one
takes into consideration the extensive coverage of the Greek financial tragedy as
portrayed through the media. Then again, it is the same media that now proclaim
that the crisis is miraculously nearing its end.48 On the other hand, one may rightly
identify a moral hazard in tampering too much with the binding force of an obliga-
tion. However, an equally demoralizing atmosphere hovers relentlessly over the
gloomy Athenian streets.
9.3 In Place of a Conclusion – The Forgotten Alternative:

Impossibility to Perform
The prevalence of the rebus sic stantibus approach in cases of economic failure is
deeply rooted in the history of the civil law. The doctrine of rebus sic stantibus
emerged in the early writings of Roman jurisconsults. The Romanist school of glos-
sators and later Canonist writers relied upon it as a systematic effort in favor of a
more flexible approach to impossibility of performance so that an excessive increase
in onerousness of performing brought about by an unforeseen change of circum-
stances would be as much of an excuse for a debtor as the impossibility brought
about by a fortuitous event. That is so because of the stringency of the rule of impos-
sibility as a lawful excuse of a debtor from performing.
45
See Roussos (2010), p. 585 et seq. [in Greek]; Karampatzos (2013), p. 97 note 42 [in Greek];
Koumanis (2006), p. 1865 [in Greek].
46
See Venieris and Katsas (2013) passim [in Greek], Dellios (2012), p. 241 et seq. [in Greek],
Paparseniou (2010), p. 915 et seq. [in Greek], Roussis (2013), p. 1166 et seq. [in Greek]. Special
legislation aimed at the protection of the individual consumer has also imposed a moratorium on
foreclosures on the debtor’s homestead for a prolonged period of time.
47
See Perakis (2012) passim [in Greek].
48
BBC Europe (28 January 2014) “Whatever happened to the eurozone crisis?” http://www.bbc.
com/news/world-europe-25931829 [accessed 31 March 2014].
156 N.A. Davrados
The traditional doctrine of impossibility49 requires that performance is made

absolutely impossible by a fortuitous event50 for the debtor to be relieved of liability
for nonperformance. This doctrine allows impossibility to be an excuse for nonper-
formance only when it is absolute and demands, by implication, that the debtor
employ all available efforts and resources, and even face economic collapse if nec-
essary, in order to perform. In other words, the debtor’s diligence must be absolute
and perfect regardless of the magnitude of the increase in physical or financial effort
that unforeseen events or changes in circumstances may require of him in order to
perform.51 An identical legal treatment of impossibility to perform is adopted at
common law under the doctrine of frustration of the contract.52
When the obligation is to deliver fungible things, or things that are not individu-
alized but merely indicated by species, it is difficult to think of circumstances that
would reduce a debtor to an absolute impossibility to perform. That is so because of
the principle expressed in the adage genera non pereunt.53 For that reason, obstacles
that a debtor might find to fulfilling the obligation will be regarded as difficulties
that make performance more burdensome, but do not constitute a true impossibility
warranting the court’s excusing nonperformance.54
The same conclusion prevails, for greater reasons, when the obligation is to give
a sum of money, that is, to pay a monetary obligation. In traditional civilian
doctrine, absolute impossibility to perform such an obligation is inconceivable.55
Therefore, traditional civilian doctrine clearly excludes the application of the
rules of impossibility to financial crises, but reserves the doctrine of rebus sic stan-
tibus as a subtle counterpart.56
49
Corpus Juris Civilis, Digest 50.17.185 (“impossibilium nulla est obligatio”).
50
Corpus Juris Civilis, Digest 18.6; 50.17.23 (“casus a nullo prestatur”).
51
See Kalligas (1885), p. 750 et seq. [in Greek], Theophanopoulos (1904), p. 136, 171 et seq., 250
[in Greek], Ude (1865), p. 246 et seq., Klimas (2006), p. 193 et seq., 212 et seq.
52
For a comparative excursus, see Corbin et al. (1947), p. 1 et seq. (containing reports from the
United States of America, the Soviet Union, Uruguay, and Brazil); Hay (1961), p. 345 et seq.;
Draetta (1996), p. 547 et seq.; Hondius and Gricoleit, (eds) (2014) passim; Klimas (2006), p. 212
et seq.
53
Corpus Juris Civilis, Digest 23.3.42; 30.66§2; 31.87; 35.2.30§5; 44.7.1§§2-4; 45.1.38; 46.3.33§1
(“genus perire non censetur”).
54
See Gasis (1949) in: ErmAK, Introduction of Articles 335–348 CC, para. 50; Kalligas (1885),
p. 750 et seq.; Paparregopoulos (1890), pp. 84–85, 263 [in Greek]; Tomkins and Jenken (1870),
pp. 350–351. The same solution has historically prevailed at common law. See e.g., Wharton
(1882), p. 463 et seq.
55
The prevailing view among the Roman jurisconsults was that money was a both a fungible thing
(res fungibilis) (Institutes of Gaius 2.196; 3.90) and a consumable thing (res consuptibilis), and
that parties referred to the represented value of the currency and not to the physical object of the
monies themselves (Corpus Juris Civilis, Institutes 2.4.2). See further Erdody (2007), p. 241
et seq.; Gasis (1949), in: ErmAK, Introduction of Articles 335–348 CC, para 52, and Introduction
to Articles 291–292 CC, paras 3 et seq.; Stathopoulos (1979) in: Georgiadis & Stathopoulos,
Article 336 CC para 3; idem, supra note 10, p. 1057 et seq.
56
See Pothier (1764), p. 121 et seq.
Theoretically, however, even under the stringency of the traditional doctrine,

impossibility to perform a genus of objects can occur, if the entire species becomes
extinct, or if there is a noticeable shortage of the kind of species contemplated in the
obligation. If this statement holds true, then the following question could be raised:
In a monetary obligation between private individuals (who, unlike institutional
transacting parties, do not have easy access to foreign currency) expressed in euros,57
is it conceivable to argue that the non-devaluation of the currency,58 or even the
shortage in liquidity of available funds in a market (in plain words this means that
no new euros are being printed or are circulating in the real economy due to ‘capital
controls’), would in fact be tantamount to an impossibility on the debtor’s part to
discharge the obligation, not because that debtor alone is insolvent, but because
there are not enough euros in the money market, due to a monetary crisis?
As long as this crisis unfolds, and until the common European currency becomes
equipped with a common fiscal and monetary policy,59 such questions will not so
easily be dismissed as theoretical absurdities, but may very well challenge our per-
ception of certain basic and fundamental tenets of our contract law.
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Chapter 10
“All Roads Lead to Rome”: The Multiple
Grounds Under Italian Law to Challenge
a Contract Due to Supervening Changes
of Circumstances
Marco Torsello
Abstract This paper focuses on the impact of the global financial and economic
crises on the binding force of contracts from the perspective of Italian law. The
analysis relies on a preliminary distinction between different factual consequences
of the crises, in view of their potential availability as grounds for derogation to the
principle “pacta sunt servanda”. The paper uses those factual circumstances as
hypotheticals to illustrate the operation of Italian law, highlighting that impossibil-
ity of performance, supervening excessive onerousness of performance, excessive
devaluation of the counter-performance and failure of presupposed conditions are
all available doctrines under which an exception to the principle of “pacta sunt ser-
vanda” may be sought. The paper argues that all these different doctrines share the
same rationale, that is the existence of an implied contract term of “rebus sic stanti-
bus”, which may lead to the remedy of termination. The paper concludes that if any
remedy is to be granted, termination is to be preferred to renegotiation or revision,
as the former is more likely to lead to a reassessment of the price reflecting the new
market conditions.
An earlier version of this article is published in the book “Rapports Nationaux Italiens au XIX
Congrès International De Droit Comparé /Italian National Reports to the XIXth International
Congress of Comparative Law – Vienne 2014” published by Giuffrè Editore in collobaration with
Società Italiana per la Ricerca nel Diritto Comparato and Università degli Studi di Milano upon
whose approval, was updated later by the author.
M. Torsello (*)
School of Law, University of Verona, Verona, Italy
School of Law, New York University, New York, NY, USA
e-mail: marco.torsello@univr.it; marco.torsello@nyu.edu

164 M. Torsello
10.1 Introduction
It has not been a rare occurrence in the past half-decade to come across the state-
ment that “nothing will ever be the same again”. Apart from a few citations of the
lyrics of a melancholic song, in the vast majority of cases this expression and simi-
lar ones were used to refer to the impact of the recent global financial and economic
crises on people’s everyday life. In fact, the same statement has been used by both
laymen and business operators, consumers and professionals, debtors and creditors,
and even by bankers and other representatives of financial institutions.
The diversity of the background and economic standing of those calling forth the
reported statement triggers the question as to what contingencies exactly does the
reference to the recent “global financial and economic crises” apply to. The answer
to this question may, in turn, make it easier to identify what, in people’s life will
“never be the same again”, and whether such a dramatic change should result in a
reversal of situations that beforehand were regarded as established. In particular,
this paper will focus on the impact that the global financial and economic crises may
have on the binding force of existing contracts and will provide an overview of the
matter under consideration from the perspective of Italian contract law.1
The task undertaken here will be dealt with by making the attempt at addressing
several relevant questions concerning the effects of financial and economic crises on
the binding force of contract. Section 10.1 will start by identifying a list of possible
factual consequences of financial crises, which deserve further investigation in view
of their potential capability to provide viable grounds for a derogation to the prin-
ciple of “pacta sunt servanda” under Italian law; on those grounds, Sect. 10.2 will
provide an overview of the theoretical bases under which Italian law may provide
for a derogation to the principle of “pacta sunt servanda” in exceptional circum-
stances; Sect. 10.3 will then deal with the conditions required for the exceptional
circumstances to have legal effects; the appearances of the relevant exceptional cir-
cumstances will be considered in Sect. 10.4; in Sect. 10.5 the legal consequences of
the occurrence of the said exceptional circumstances will be illustrated under Italian
contract law; Sect. 10.6 will consider the position of the party that would have ben-
efitted from the exceptional circumstances, following the operation of the rules pro-
tecting the disadvantaged party; this study will be concluded in Sect. 10.7 with
some closing observations, based on the comparison of Italian contract law with
solutions found in other legal systems.
1
It must be stressed here that Italian domestic law also includes sources of uniform law which were
created at the supranational level, such as, for instance, the United Nations Convention on Contracts
for the International Sale of Goods (CISG), adopted in Vienna on April 11th, 1980. Although the
CISG is certainly part of the Italian legal system and its Article 79 may be regarded as addressing
the issue of the effects of the financial and economic crises on international contracts of sale (for
further details on Article 79 CISG, Ferrari, Torsello (2014) 317–333), this paper will deal neither
with the CISG, nor with other supranational sources of contract law, but rather will focus only on
Italian domestic contract law as laid out in Italian purely domestic law.
10 “All Roads Lead to Rome”: The Multiple Grounds Under Italian Law to Challenge… 165
10.2 The Factual Consequences of the Financial Crisis

and Their Relevance Under Italian Contract Law
According to a widely accepted definition, reference to the recent “global financial

and economic crisis” relates to the situation that materialized starting from approxi-
mately mid-2007. For reasons that need not be explored in detail here, parties to
financial contracts in many nations simultaneously concluded that the contracts they
held were unlikely to be honored by counterparties and that the financial assets that
they had in their portfolios were likely to be worth substantially less than previously
thought.2 Under those circumstances panic spread. Banks ceased to advance funds
to others, demanded early repayment of loans, liquidated holdings of financial
assets that could be sold and increased collateral requirements. All these actions are
thought to have been taken to a degree that could not have been foreseen in advance
by market participants, to the effect that a freeze of most financial activities occurred.
In turn, the freeze of financial activities produced additional considerable difficul-
ties in trading financial instruments. Also private individuals, fearing for their
wealth, contributed to the crisis by demanding repayment of financial instruments
and seeking to hold accepted stores of value, such as gold, the value of which, in
fact, rocketed to unprecedented peaks.
The global financial crisis is often symbolically identified with the collapse and
filing for bankruptcy of the US investment bank, Lehman Brothers, which happened
on September 15th, 2008.3 The financial crisis rapidly and dramatically resulted in
a global economic crisis. Although the dynamics that led from the financial to the
economic crisis are extremely complicated and still largely controversial, it seems
correct to maintain that the withdrawal of credit to businesses caused by the global
financial crisis created a severe downturn in economic activities, resulting in falls in
national income and increase in unemployment. In one word, the financial crisis
turned into an economic crisis, from which most economies worldwide have still
not recovered in full.
The financial crisis and the following economic crisis are often held to be phe-
nomena that were unforeseeable and unpredictable before their occurrence. Indeed,
it is a fact that, with very limited exceptions, economists had not predicted the crisis
and proved to be largely unprepared to deal with it. From a legal perspective, unfore-
seeability and unpredictability are relevant characteristics of supervening events,
which may lead to the inference of significant consequences on commercial rela-
tionships and existing contracts. In particular, it is widely accepted that the general
rule of contract law that “pacta sunt servanda” may at times be subject to an excep-
tion, to the extent that supervening events occur, which have such an impact on the
equilibrium of the contract that it would be unreasonable to impose a duty to per-
form, or liability for non-performance, on the party affected by the supervening
2
For this definition, see, Financial Times Lexicon, available online at: http://lexicon.ft.com.
3
However, clear sings of the crisis were apparent well before the collapse of Lehman Brothers,
although it may prove difficult to set a precise date for the start of the crisis. Relevant, pre-Lehman-
Brothers signs of the crisis included, in particular, the sharp revaluations in the prices of lower
quality US mortgage-backed securities (so called subprime mortgages).
166 M. Torsello
event. Accordingly, it seems correct to affirm that, under certain circumstances, the
rule that “pacta sunt servanda” is subject to the exception that the binding force of
contracts persists only to the extent that “rebus sic stantibus”, i.e., only to the extent
that the basic preconditions of the agreement do not change.
However, the notion of “financial and economic crises” seems in itself too vague
to make any proper assessment possible, as to the legal consequences of the occur-
rence of such global phenomenon. It is therefore necessary to take a closer look to
the factual consequences of the crises in order to be able to make an assessment as
to whether the changes brought about are capable of affecting existing contracts. In
this respect, there are several different situations that are likely to arise from a finan-
cial or economic crisis, each one of which may be regarded as having a possible
impact on the equilibrium of contracts.
The first type of phenomenon resulting from the global financial and economic
crises may be described as the “tightening of access to credit”. Indeed, the global
financial crisis has proved to have a negative impact on the access to credit, in that
financial institutions have become more reluctant to provide credit to individuals
and businesses, and the cost of credit (i.e., primarily the interest rate on loans) has
increased significantly. The social and political relevance of this phenomenon in
Italy is confirmed by the attention paid by the Italian government to its impact on
the increase of the cost of variable interest rates payable by individuals and families
on mortgage loans concluded for the purchase by mortgagors of their house of prin-
cipal domicile. In fact, a statutory provision was introduced in 2008,4 under which
a complex mechanism was introduced with the goal of granting to the debtor the
possibility of obtaining the reduction and stabilization of the interests payable per
installment, in exchange for an extension of the duration of the loan. In one word,
the legislative innovation intended to favor the renegotiation of existing loans.5
The second type of consequence typically resulting from a financial or economic
crisis is “inflation”,6 which consists of the devaluation of the purchasing power of
money and, as a result of that, in the increase of the cost of products. It should be
noted with relief that up to date the global financial and economic crises have not
produced significant inflationary effects, although there are fears that in the long run
the several stimulus packages put in place by governments and central banks by
injecting liquidity in the market may cause inflationary phenomena. However, even
though generalized inflation has not occurred as a result of the financial crisis, the
prices of some commodities and raw materials have risen unexpectedly beyond the
range of normal fluctuation. As a result of this, it has been argued at times that the
increased cost of products has had a negative impact on the equilibrium of existing
contracts dealing with the products in question.7
4
Article 3 of the Law Decree (Decreto Legge) n. 93/2008, converted into the Statutory Law (Legge)
of 24 July 2008 n. 126, in Official Journal n. 174 of 26 July 2008.
5
For further details, see Fausti (2008) 746.
6
For a classical study on the effects of inflation on contracts, see Nicolò (1944–1946) 41.
7
For a well-known recent court decision (although not rendered by an Italian court) dealing with
the consequences of the exceptional increase in the market price of steel, see Hof van Cassatie
(Belgian Supreme Court), 19 June 2009 (Scafom International BV v. Lorraine Tubes SAS), English
translation available at http://cisgw3.law.pace.edu/cases/090619b1.html.
The third type of consequence of a financial and economic crisis can be described
as the opposite of the prior one. It is commonly referred to as “deflation”, and it has
been observed and described as resulting from the global financial and economic
crises and leading to the decrease in value of products. Also under deflationary cir-
cumstances, the equilibrium of existing contracts may be negatively affected in that
the value of products exchanged under the contract may drop significantly. To pro-
vide just one relevant example closely related to the financial crisis (and possibly to
some extent preceding and contributing to cause the crisis), the value of real estate
has significantly dropped in many areas of the world.
The forth, and last, type of relevant effect of the financial and economic crises
capable of affecting existing contracts consists of the generalized “market slow-
down”. As a result of the slowdown, many manufacturers have found themselves in
a situation of “over-production” or “over-supply”, where the market is no longer
capable of absorbing their output and, in turn, the manufacturers do not need the
quantities of supplies previously required. It should be stressed that the situation
that has just been described may occur and be relevant even if the value of the prod-
ucts manufactured by the business in question doesn’t change. Accordingly, the
relevant change capable of affecting the contract does not consist of an alteration of
the original equilibrium, but rather in a change of the overall context and conditions
under which the parties had entered into the agreement.
In the light of the foregoing, it seems correct to argue that the financial and eco-
nomic crises may impact on contracts in various different ways. All the possible
ways in which the economic crisis may affect contracts may be subsumed under the
general notion of supervening changes of circumstances, which has often been
described by reference to the existence of an implied condition of “rebus sic stanti-
bus”. Under this implied term the effectiveness of the contract would be conditional
upon the persistence of the circumstances under which the contract was concluded.
However, in order to properly provide an overview of how Italian contract law deals
with the effects of financial crises at large, the distinction that has been made among
the different types of effects of the financial and economic crises will be considered
in the light of the various theoretical bases under which the principle of “rebus sic
stantibus” may constitute an exception to the fundamental rule of contract law that
“pacta sunt seranda”.
10.3 The Theoretical Bases of the Effects of Financial Crises

on Contracts Under Italian Contract Law
Not unlike all other modern legal systems, Italian law posits as a fundamental prem-
ise of the entire system of contract law that “pacta sunt servanda”.8 This rule was
already codified in Article 1123 of the Italian Civil Code of 1865, which in this
respect (as in many others) reproduced the solution adopted by the French Code
8
Cf. De Nova (1993).
168 M. Torsello
Napoléon of 1804. Indeed, according to Article 1134 of the Code Napoléon,9 «[l]es
conventions légalement formées tiennent lieu de loi à ceux qui les ont faites».10 The
Italian codified provision of 1865 read almost identically, and a very similar solu-
tion was also adopted in 1942 in the new Italian Civil Code (hereinafter also referred
to as “c.c.”), currently in force, whose Article 1372 recites that “the contract has the
force of law as between the parties […]”.11
As an example of the persisting fundamental role of the general rule under con-
sideration, suffices it to mention a recent decision rendered by the Administrative
Court of Lombardy, seated in Milan.12 Indeed, the court rejected the claim for a
derogation from the duty to abide by the contract in a situation where the contractor
to a construction contract with the municipality of Gallarate invoked the «unfore-
seeable and extremely severe global crisis in the construction business», along with
the «crisis of the financial sector». The court did not share the view that the change
of circumstances invoked by the construction company should have an impact on
the contract and upheld the duty to abide by the terms of the agreement.
In the past, a comparable solution, upholding the application of the principle that
pacta sunt servanda, was adopted by Italian courts upon the occurrence of another
(yet local) economic crisis. The economic crisis in question took place in the early
Nineties, and led Italy to abandon the European Monetary System (E.M.S.). The
system was based on the European Exchange Rate Mechanism, which attempted at
minimizing the fluctuation of European currencies by linking them to the European
Currency Unit (ECU). The abandonment of the E.M.S. by Italy resulted in a sudden
fall of the exchange rate of the Italian Lira against the ECU, which in turn caused
increases in the cost for repayment of loans denominated in ECU of up to 30 %.
Notwithstanding this rather harsh consequence, Italian courts called upon to address
the issue at hand held that contracts were not affected by the change of circum-
stances to an extent that would require the discharge from the contractual obliga-
tions.13 Courts thus confirmed that the general rule of Italian contract law strictly
adheres to the principle that pacta sunt servanda.
However, although pacta sunt servanda must be regarded as the general and
fundamental rule of Italian contract law, under certain circumstances exceptions to
that rule are allowed, in accordance with the principle of “rebus sic stantibus”.14
These exceptions are primarily based on the occurrence of relevant supervening
9
A solution that the Code Napoléon borrowed from DOMAT, Les lois civiles dans leur ordre naturel,
Book I, Title I, Sec. II, VII: «Les conventions étant formées, tout ce qui a été convenu tient lieu de
loi à ceux qui les ont faites et ells ne peuvent être révoquées que de leur consentement commun».
10
For comments on this provision, see, e.g., Jamin (2001) 901; Ghestin and Billiau (2001) 656.
11
Translation by the Author. For a scholarly writing dealing with the rule at hand, see Vettori
(2002).
12
T.A.R. (Regional Administrative Court) Lombardia (Milan), 21 May 2013, in Foro Amm. –
T.A.R., 2013, 1450; for a similar, although not identical, approach, see also Cons. Stato (Supreme
Administrative Court), 17 May 2010, n. 3129, in DeJure Redazione Giuffè, 2010.
13
See, e.g., Trib. (Court of first instance) Pescara, 24 January 1997, in Foro it., 1998, I, 613; Trib.
(Court of first instance) Firenze, 28 March 1998, in Gius, 1998, 2189.
14
On the principle of rebus sic stantibus, prior to the Italian codification of 1942, see, Caliendo
(1938) 209; for an update on the same issue, see, Osti (1959) 353.
events, which are deemed to have such a significant impact on the contract in ques-
tion that derogation to the general rule appears necessary. Cases of express applica-
tion of the principle of “rebus sic stantibus” in contracts are at times laid out with
specific regard to individual types of contracts. However, a broader and more gen-
eral possibility to claim the discharge from contractual obligations is also made
available to the party affected by supervening circumstances under the general rules
on contracts and obligations laid out in the Italian c.c..
A prominent example of a rule specifically devoted to a single type of contract is
laid out in Article 1664 of the Italian c.c. with respect to contracts for works. Under
this provision, «(1) [w]henever, as a result of unforeseeable circumstances, increases
or decreases in the costs of materials or workforce occur, so as to determine an
increase or decrease greater than one tenth of the overall price agreed upon, then
either the contractor or the client may request a revision of the price. The revision
may be granted only with respect to the difference that exceeds one tenth. // (2) If, in
the performance of the contract works, difficulties arise, which are due to geologi-
cal, hydric or similar causes, to the effect that the contractor’s works are signifi-
cantly more onerous, the latter shall have the right to claim an additional equitable
compensation».15
As already mentioned, in addition to rules dealing with specific types of con-
tracts (such as contracts for works), Italian law also provides for rules applicable to
contracts and obligations in general. In particular, the rules in question provide for
the possibility to claim the discharge from an existing contract in the event of super-
vening circumstances altering to a significant extent the conditions taken into
account by the parties at the time of contracting. The following overview will focus
on the latter kind of provisions, which set forth general contract remedies available
in the event of the occurrence of unforeseen supervening circumstances.
First of all, not unlike in many other jurisdictions,16 under Article 1256 of the
Italian c.c., relevant supervening events leading to the discharge of the contractual
obligations, include impossibility of performance. Supervening impossibility con-
sists of an objective and absolute impediment, which is not due to an act or omission
of one of the parties and which cannot be overcome.17 Therefore, under Article 1256
of the Italian c.c., the party whose performance became impossible is discharged
from his obligations. Moreover, under Article 1463 c.c., that same party cannot
claim performance from the other party (whose performance is still possible), and if
the counter-performance had already been rendered, the party whose performance
has become impossible must make restitution of what he received.18
In addition to supervening impossibility, relevant changes of circumstances
capable of having an impact on existing contracts include also “supervening exces-
15
Translation by the author. For a recent court decision applying the rule under consideration, see
Cass. (Italian Supreme Court), 13 January 2010, n. 380, in Giust. civ. Mass. 2010, 2, 142.
16
See, e.g., with respect to the French legal system, Cass. (French Supreme Court) Ass. Plén., 14
April 2006, in Rev. des Contr., 2006, annotated by VINEY.
17
Cass. (Italian Supreme Court), 15 November 2013, n. 25777, in Giust. civ., Mass. 2013.
18
Cf. Cass. (Italian Supreme Court), 28 February 2013, n. 5033, in Giust. civ., 9, I, 1737, with com-
ment by D’Auria.
170 M. Torsello
sive onerousness of performance”.19 This special kind of change of circumstances is

expressly dealt with in Articles 1467–1469 of the Italian c.c.. The solution adopted
by the provisions at hand has been regarded as a remarkable innovation of the 1942
Italian codification, which has inspired several subsequent national legislative pro-
visions in Europe,20 Latin America,21 Islamic countries22 and elsewhere, as well as
several supranational instruments dealing with the law of contract.23
The provisions under consideration operate only in long-term, relational con-
tracts, which provide either for performance in installments, or for a postponed
performance.24 Conversely, they do not operate with regard to discrete contracts, the
rationale being that the supervening event may be taken into account only to the
extent that the contract has not already produced all its effects. Moreover, under
Article 1469 Italian c.c., the provisions on supervening excessive onerousness oper-
ate only with respect to commutative contracts, where the parties intend to execute
an exchange of corresponding performances. Conversely, the provisions at hand do
not operate with respect to so-called aleatory contracts,25 where the parties contrac-
tually accept the risk that one or both performances be not rendered or be not worth
what was envisaged in the contract.26 It should be noted that the aleatory nature can
be an intrinsic character of the contract in question, like in the case of insurance
19
For scholarly works specifically dealing with this matter, see, among others, Pennazio (2013),
Riccio (2010), Macario (2009) 1026, Al Mureden (2004), Traisci (2003), Terranova (1996), Gallo
(1991) 235, Tartaglia (1980) 155, Pino (1952).
20
In Europe codified solutions similar to the Italian one, and arguably inspired by the latter, can be
found, e.g., in the Greek Civil Code of 1946 (Article 388), in the Portuguese Civil Code of 1966
(Articles 437–438), in the Dutch NBW of 1992 (Article 6:258), and in the Civil Code of the
Russian Federation of 1996 (Article 451); also the 2002 Reform of the German Civil Code has led
to a new provision in § 313 BGB, although the primary source of inspiration in that respect must
be traced back to the pre-existing German case-law and scholarly writings on the issue of
Geschäftsgrundlage, dating back to the landmark work of Windsheid (1850).
21
In Latin America, several legislatures introduced a special rule on supervening excessive oner-
ousness on the basis of the Italian model: samples of this include Article 1198 of the Argentinian
Civil Code, introduced by means of the Statute 17.711 of 1968; the Colombian Commercial Code
of 1972 (Article 868); the 1975 Civil Code of Bolivia (Article 581–583); the Civil Codes of
Paraguay and Perù, both adopted in 1984; and the new Brazilian Civil Code of 2003 (Articles 317
and 478).
22
As far as islamic legal systems are concerned, the Italian model on supervening excessive oner-
ousness inspired the Civil Code of Egypt of 1949 (Article 147), which in turn was the source of
inspiration for several other civil codifications, including those of Syria of 1949 (Article 166), of
Libya of 1954 (Article 147), of Jordan of 1976 (Article 205), of Kuwait of 1980 (Article 198), as
well as the Law on Commercial Contracts of the United Arab Emirates of 1993 (Article 181), and
that of Tunisia, reformed in 2005 (Article 1022).
23
Provisions in international instruments, which may be held to have taken into account, at least to
some extent, the Italian model on supervening excessive onerousness include the 1980 Convention
on Contracts for the International Sale of Goods (Article 79); the Unidroit Principles of
International Commercial Contracts (Article 6.2.3), the Principles of European Contract Law
(Article 6.111), the Draft Common Frame of Reference (Article 1:110 of Book III), and the
Proposal for a (EU) Regulation of the European Parliament and of the Council on a Common
European Sales Law, of 11 October 2011, [COM(2011) 635 final] (Article 89).
24
For a similar statement, see, e.g., Tartaglia (1980) 161.
25
On the notion of aleatory contract see, e.g., Gabrielli (2000) 1, Di Giandomenico (1987).
26
See, e.g., Cass. (Italian Supreme Court), 4 January 1993, n. 10, in Giust. civ., Mass. 1993, 5.
contracts; however, it can also be the result of the agreement of the parties, who are
in principle free to allocate by contract risks among themselves, thus limiting the
possible operation of rules on changes of circumstances.27
If one were to limit the analysis of Italian contract law only to the legislative
formant, one would conclude that the provisions considered above exhaust the cases
where supervening circumstances may have an impact on existing contracts.
However, the proper methodology to be adopted in any legal analysis requires the
interpreter not to limit the analysis to only one formant, but rather to consider the
role of all formants with respect to the matter under consideration.28 Accordingly, a
closer look to judicial and doctrinal formants of Italian contract law shows that there
exist additional, non-codified, types of supervening occurrences, which may be
invoked by the disadvantaged party to the contract in order to free himself from the
duties arising under that contract.
On grounds similar to those underlying the provision of Article 1467 of the
Italian c.c., it has been held that not only the relevant increase of the costs of perfor-
mance, but also a “significant devaluation” of the expected counter-performance
justifies the discharge from his contractual obligations of the promisee of the deval-
ued performance.29 This conclusion is not supported by any legislative provision
laid out in the Italian c.c.; however, scholarly writings have provided convincing
evidence that in a considerable number of cases where courts applied Article 1467
c.c., the facts of the case considered by the courts consisted of the devaluation of the
counter-performance, rather that of the increased onerousness of the performance of
the promisor.30 Accordingly, it is correct to argue that under Italian contract law, as
resulting in particular from the doctrinal and judicial formants, the remedy provided
for under Article 1467 c.c. is available also in the event of a significant devaluation
of the expected counter-performance.
On a different note, Italian scholarly writings and court decisions31 have hitherto
supported without hesitation the application of another doctrine dealing with
changes of circumstances and well-known also in other legal systems,32 namely the
doctrine of “presupposizione”.33 “Presupposition” occurs when «a certain objective
situation, whether factual or legal, past present or future – the existence,
discontinuance and verification of which is entirely independent from the will of the
27
Cf. Balestra (2000).
28
See, Gambaro and Sacco (2002) 4.
29
Cf. Sacco (2002) 682.
30
See, among many others, Cass. (Italian Supreme Court), 11 November 1986, n. 6584, in Foro it.,
1987, I, 2177, with a comment by Massa, which declared the termination of a contract providing
for an encumbrance on immovable on the grounds that inflation had devaluated the consideration
payable under the contract. For an example of the prior approach in case law, holding that devalu-
ation of the counter-performance did not justify termination under Article 1467 c.c., see, Cass.
(Italian Supreme Court), 4 October 1951, n. 2618, in Giur. compl. Cass. civ., 1951, III, 680.
31
For a leading case on this matter, see Cass. (Italian Supreme Court), 17 December 1991, n.
13578, in Giust. civ. Mass. 1991, fasc. 12.
32
In particular, in German legal scholarship, besides the pivotal studies of Windsheid (1850), see
Oertmann (1921), Larenz (1963).
33
On the notion and doctrine of “presupposizione”, see, among others, Bigiavi (1949) 173, Serio
(1996) 294, Belfiore (1998), Nicolussi (2001) 848.
172 M. Torsello
parties and which does not constitute the object of a specific obligation of the par-
ties – may be deemed, even in the absence of a specific reference to it in the contract
terms, to have been taken into consideration by the parties in the expression of their
consensus to the contract, as a decisive presupposition conditioning the existence
and persistence of the binding force of the agreement».34
Therefore, the doctrine of “presupposizione” does not necessarily require a
change in the economic equilibrium of the contact, but rather implies the failure of
a presupposed condition, or the occurrence of a contingency the non-occurrence of
which was a basic assumption on which the contract was made.35
To sum up, under Italian contract law, impossibility of performance, excessive
onerousness of performance, excessive devaluation of the counter-performance and
failure of presupposed conditions, all constitute available theoretical legal grounds
under which an exception to the fundamental rule that pacta sunt servanda may in
principle be justified. Given the foregoing, it is confirmed that, at least in principle,
the effects of the financial crisis may have an impact on the binding force of con-
tracts, although this may happen under different doctrines, in relation to different
circumstances.
Indeed, “inflationary” consequences, as well as the “devaluation” of goods may
trigger primarily the application of Article 1467 of the Italian c.c., in view of both,
the possible increase of the costs of performance for the promisor and the possible
decrease of the value of the counter-performance. On the other hand, the “tightening
of access to credit” and the “market slowdown” may, in principle, be relevant under
the doctrine of impossibility, at least to the extent that this doctrine is construed so
as to include cases where performance cannot be reasonably expected from the
promisor, due to contingencies similar to impracticability, or the like. As an alterna-
tive, the same aforementioned factual situations resulting from the economic crisis
may become relevant under the doctrine of failure of presupposed conditions (“pre-
supposizione”), undisputedly accepted in Italian scholarship and case-law.
10.4 Legal and Factual Pre-conditions for the Derogation

to the Principle of Sanctity of Contracts
All the hypotheticals made in the previous section require now further investigation
as to the legal and factual pre-requisites for the availability of an exception to the
principle of “pacta sunt servanda”. It should be stressed that the said basic principle
34
Cass. (Italian Supreme Court), 24 March 1998, n. 3083, in Giust. civ., 1998, I, 3161, with note
by Calderoni, Presupposizione e disciplina del contratto: translation by the Author. See also Trib.
(Court of first instance) Modena, 20 February 2013, n. 249, in Giurisprudenza locale – Modena,
2013, suggesting that the doctrine of “presupposizione” presents, on the one hand, similarities with
the notion of (implied) conditions precedent, and, on the other hand, with the doctrine of causa.
35
The language used in the text intentionally resembles that of the Uniform Commercial Code,
Article 2–615, on “Excuse by Failure of Presupposed Conditions”. In fact, it is argued that the
doctrine under Italian law and the provision under the U.C.C. serve similar goals by means of
comparable legal tools.
of contact law – also expressed by reference to the notion of “sanctity of contracts” –

lays out a rule that serves well the need for certainty and predictability in contract
law, and it is in line with the windfall principle under which “the loss must lie where
it falls”.36 Accordingly, not any change of circumstances may justify the discharge
of the promisor from his contractual obligations, but only the occurrence of certain
extreme and well-specified legal and factual pre-conditions may support the deroga-
tion to the principle of sanctity of contracts.
The rule of Italian contract law that most clearly serves the need to provide an
escape from the binding force of contracts in the event of significant changes of
circumstances is the one laid out in Article 1467 c.c.. It has already been pointed out
that court decisions and scholarly writings converge towards the conclusion that the
provision at hand is applicable not only in the event of an abnormal increase of the
costs of performance for the promisor, but also in the event of an abnormal devalu-
ation of the counter-performance owed by the promisee.
Under Article 1467(1) c.c., the supervening excessive onerousness of promisor’s
performance is relevant only to the extent that it is the result of extraordinary and
unforeseeable circumstances.37 The expression is not to be regarded as a hendiadys,
in that the requirements that the supervening event be extraordinary and that it be
unforeseeable do not coincide, although at times they may overlap in whole or in
part.38 On the one hand, the requirement that the event be extraordinary is an objec-
tive one, which requires a statistical measurement of the frequency, dimension and
intensity of the event under consideration.39 In order to be relevant under Article
1467(1) of the Italian c.c., the occurrence of the supervening event must have been
ex ante (i.e., at the time of the conclusion of the contract) highly unlikely to occur,
or to occur with the frequency, dimension or intensity it did.40 On the other hand, the
requirement that the event be unforeseeable is a subjective one. However, regard
must not be had to whether the promisor foresaw the event in the case at hand, but
rather to whether a reasonable person in the same circumstances would have
foreseen the event.41 The approach to foreseeability adopted by Italian courts must
be supported, in that it provides a somewhat more objective and predictable crite-
rion to evaluate whether the requirement of foreseeability under Article 1467(1) of
the Italian c.c. is met.
According to the prevailing view in scholarly writings and court decisions the
two requirements that the supervening event be extraordinary and unforeseeable
36
For a thorough discussion of this issue, see Kull (1991) 1 ff.; for a similar analysis conducted
from the Italian perspective, see Trimarchi (1991) 63.
37
See Tartaglia (1980) 162.
38
Accordingly, among others, Cabella Pisu (2009) 555; for an overview of Italian case-law con-
firming the distinction of the two notions, see Accardo (1996) 16.
39
For this criterion, see, e.g., Cass. (Italian Supreme Court), 25 May 2007, n. 12235, in Rass. dir.
civ., 2008, 4, 1134, with comment by Pennazio.
40
Cf. Sacco (2004) 711.
41
See, e.g., Cass. (Italian Supreme Court), 25 May 2007, n. 12235, cited in the previous note, as
well as Cass. (Italian Supreme Court), 19 October 2006, n. 22396, in Il civilista, 2009, 12, 88, with
comment by Pezzini.
174 M. Torsello
must concur,42 to the effect that the absence of either one of them prevents the pos-
sibility to rely on the discharge from the contractual duties granted under Article
1467 of the Italian c.c..43 It should be noted, however, that the mere fact that the
parties had foreseen the possibility of a certain contingency does not in itself neces-
sarily exclude the possibility to invoke the discharge from contractual obligations
under Article 1467(1) c.c., to the extent that the dimension or intensity of the super-
vening event can be deemed to have reached an unforeseeable degree. Accordingly,
to provide just one example, in a famous 1981 decision the Italian Supreme Court
applied the rule at hand and discharged the promisor from his contractual obliga-
tions on the grounds of the exceptional increase of oil prices that occurred as a result
of the 1973 Arab-Israeli war, although the parties had considered the possibility of
an increase of price and had included in the contract a price-fluctuation clause.44
In addition to the pre-conditions that the supervening event be extraordinary and
unforeseeable, Article 1467(2) also requires that the increased onerousness of per-
formance (or the devaluation of the counter-performance) must range beyond the
normal risk involved in contracts of the kind of the one in question.45 According to
the Official Report by the Ministry of Justice, which accompanied the Civil Code,46
the normal risk involved in contracts consists of the risks that the contract involves
as a result of its own structure and that the parties have implicitly undertaken by
entering the contract.
Notwithstanding the distinction of the different requirements,47 it has been noted
that, in practice, all of them concur in defining the extent of the risk allocated on the
promisor, as opposed to risks that cannot be held to have been allocated on him.48
An alternative escape from the binding force of contracts under Italian contract
law may be provided by the rules that discharge the promisor from his obligations
in the event of supervening impossibility of performance. It has already been pointed
out that, under Article 1256(1) of the Italian c.c., the supervening impossibility of
performance consists of an objective and absolute impediment, which is not due to
an act or omission of one of the parties and which cannot be reasonably
overcome.49
42
Cf. Bessone (1975) 15; Ferri G.B. (1988) 67; Bianca (1994) 397.
43
Cass. (Italian Supreme Court) 19 October 2006, n. 22396, supra n. 38; T.A.R. (Regional
Administrative Court) Puglia (Bari), 13 May 2010, n. 1865, in Foro Amministrativo – T.A.R., 2010,
5, 1820.
44
Cass. (Italian Supreme Court), 29 June 1981, n. 4249, in Giur it., 1982, I, 1, 672.
45
Cf. Riccio (2010) 164, who treats this requirement as the prevalent one, prior to the extraordinary
and unforeseeable character of the event causing the alteration.
46
Relazione del Guardasigilli, n. 245.
47
The distinction is stressed, among others, by Gambino A (1960) 430.
48
Sacco (2002), 679; Cass. (Italian Supreme Court), 11 June 1991, n. 6616, in Giust. civ., 1992, I,
2830.
49
Cass. (Italian Supreme Court), 15 November 2013, n. 25777, supra n. 17.
The impossibility of performance must, first, be an objective one, whereas a

merely subjective impossibility cannot be given any relevance.50 As to the additional
requirement that the impossibility be an absolute one, it is usually confirmed with-
out hesitation by Italian courts.51 However, commentators have supported a more
flexible construction of the notion of “absoluteness”, positing that it should be miti-
gated by having regard to the efforts that can reasonably be expected from the prom-
isor in the given circumstances.52 In a way, this approach seems to introduce in the
Italian legal system a notion of “impracticability”, which is more familiar to com-
mon law jurisdictions.53
An additional solution available under Italian law to claim a derogation from the
duties arising under a binding contract lays in the non-codified doctrine of failure of
presupposed conditions (“presupposizione”). The persisting role played by the doc-
trine at hand in Italian contract law may be justified in the light of the limitation to
the sphere of application of the rule set forth in Article 1467 c.c..54 Indeed, not only
does the latter rule apply only to commutative and relational contracts, providing for
performance in installment, or a postponed performance, but it also requires that the
supervening event have a significant quantitative impact on the value of the perfor-
mance of the promisor, or on the counter-performance of the promisee. Commentators
have objected that the codified provision introduced by the Italian legislator does
not exhaust the list of contingencies that fell under the pre-existing doctrine of fail-
ure of presupposed conditions.55 Accordingly, legal scholars and court decisions
have maintained that, notwithstanding the introduction in the system of the special
rule of Article 1467 c.c., there is still room for application of the broader doctrine of
“presupposizione”,56 which comes into play whenever a common assumption in fact
or in law on which the parties based their agreement fails to exist, to persist into
existence, or to materialize.57
50
See, e.g., Cottino (1955) 413.
51
See, among many others, Cass. (Italian Supreme Court), 15 November 2013, n. 25777, supra n.
17, stating that «[i]n materia di obbligazioni pecuniarie, l’impossibilità della prestazione deve
consistere, ai fini dell’esonero da responsabilità del debitore, non in una mera difficoltà, ma in un
impedimento obiettivo ed assoluto che non possa essere rimosso, non potendosi ravvisare nella
mera impotenza economica derivante dall’inadempimento di un terzo nell’ambito di un diverso
rapporto».
52
Mengoni (1988) 1091, Cabella Pisu (2002) 9, Galgano (2009) 54.
53
Reference is made, in particular, to the U.S. Restatement (Second) of Contract, Ch. 11, § 261; as
well as to the Uniform Commercial Code, Art. 2–615.
54
Accordingly, Roppo (2001) 1041.
55
For a similar remark see, e.g., Branca (1962) 238; Bessone, D’Angelo (1981) 1012; contra:
Cataudella (1966) 280 ff., stating that the theory of failure of presupposed condition cannot be
invoked in the absence of an express or implied contract term identifying a certain circumstance as
a fundamental presupposition of the parties‘ consent.
56
Cf. Sacco (2004) 698.
57
See, e.g., Cass. (Italian Supreme Court), 25 May 2007, n. 12235, supra n. 37; Cass. (Italian
Supreme Court), 3 December 1991, n. 12921, in Giur. it., 1992, I, 1, 2210, with comment by Oddi,
In tema di presupposzione.
176 M. Torsello
Under the doctrine at hand the focus is not placed on the supervening event that
altered the economic equilibrium of the contract as originally conceived by the par-
ties. Instead, the doctrine of “presupposizione” emphasizes the frustration of the
goal pursued by the parties, thus focusing on possible flaws in the original content
of the agreement. On the basis of these premises, the doctrine under consideration
comes to results, which closely resemble those at times reached by means of the
doctrine of “causa”, at least to the extent that the latter is defined as a requirement
of the agreement to be intended in a subjective and concrete fashion.58 The similari-
ties of approaches and outcomes of the two doctrines is apparent in two recent deci-
sions rendered by the Italian Supreme Court, which adopted a notion of “causa in
concreto”, and emphasized the practical purpose pursued by the parties by means of
the contract, in order to come to the conclusion that the promisor could be dis-
charged from his contractual obligations because of the impracticability (“irreal-
izzabilità”) of the said “causa”.59
The coexistence of different legal grounds on which the promisor may base the
claim for a discharge from his contractual obligations may legitimately cause some
confusion. However, a closer look to those different legal grounds supports the con-
clusion that supervening impossibility of performance, supervening excessive oner-
ousness of performance and failure of presupposed conditions are, in fact, different
sub-species of the same general remedy,60 namely the remedy resulting from posit-
ing the existence of an implied term of “rebus sic stantibus”.61 A significant histori-
cal support to this conclusion may be found in the Official Report to the King,
which accompanied the text of the new Civil Code in 1942.62 Indeed, the adoption
of the rule laid out in Article 1467 c.c. is described as the legal tool to «introduce in
an express and general fashion the principle that commutative contracts are subject
to the clause rebus sic stantibus».63
The approach expressed by in the Official Report mentioned above has been
taken over by the majority of legal scholars64 and court decisions65 and it is nowa-
days the largely prevailing view. Accordingly, although differences exist among the
remedies provided in the event of supervening impossibility of performance, super-
58
For a similar approach, see Gorla (1954) 274, who subsumes the doctrine of “presupposizione”
within the doctrine of causa, regarded from a subjective and concrete perspective; for a similar
approach see also Galgano (2009) 551.
59
SeeCass. (Italian Supreme Court), 24 July 2007, n. 16315, in Foro it., 2009, I, 214; Cass. (Italian
Supreme Court), 20 December 2007, n. 26958, in Nuova giur. civ. comm., 2008, I, 531.
60
Cf. Franzoni (1998) 17.
61
For a similar conclusion, see Al Mureden (2004) 40.
62
Relazione al Re, n. 133.
63
Translation by the Author.
64
See, e.g., Bigiavi (1949) 173, Rescigno (1961) 788, Galletto (1998) 391, Serio (1996) 297.
65
See, e.g., Trib. (Court of first instance) Genova, 31 July 1995, in Foro pad., 1995, I, 308; App.
(Appellate Court) Milano, 26 May 1992, in Giur. it., 1994, I, 2, 272; Cass. (Italian Sureme Court),
28 August 1993, n. 9125, in I Contratti, 1993, 677, with comment by Moretti, Transazione nova-
tiva e presupposizione; Cass. (Italian Supreme Court), 3 December 1991, n. 12921, in Giur. it.,
1992, I, 1, 2210, with comment by Oddi, In tema di presupposizione.
vening excessive onerousness of performance, and failure of a presupposed condi-

tion, it can be argued that all these remedies express and apply the same underlying
general principle of “rebus sic stantibus”.66
10.5 Appearances of Exceptional Circumstances Justifying

an Exception to the Principle of Sanctity of Contracts
The theoretical framework that has been reported in the previous sections must now
be followed by an overview of the ways in which, in practice, unexpected superven-
ing circumstances may come into play in contract matters, so as to have an impact
on the binding force of contracts. To this end, the distinction among the various
types of phenomena resulting from a financial and economic crisis will be consid-
ered, as will be the distinction among the various remedies available to a party
affected by the supervening contingencies.
As already pointed out in previous sections, effects of the financial crisis which
may qualify for application of the remedy of discharge from the contractual duties
under Article 1467 of the Italian c.c. include supervening significant increases of the
costs of performance for the promisor or devaluation of the promisee’s counter-
performance. Under the unitary notion that has been described above, in order to
trigger the application of the rule under Article 1467 c.c., the supervening contin-
gency must cause consequences so burdensome to the promisor, that they cannot be
deemed to be within the scope of the risks that the promisor undertook by contract.67
The criteria to carry out such evaluation are threefold, and they include the fact that
the supervening event be extraordinary, that it be unforeseeable, and that the conse-
quences of the supervening event had not been contractually allocated to the
promisor.
The appearance of the exceptional circumstances in the cases under consider-
ation is based on a quantitative variation of the value of the performances that the
parties promised in exchange to each other by agreement. The means of measurement
of such variation is typically currency, which is used as tertium comparationis in
order to measure the difference of conditions at the time of performance, as opposed
to those at the time of contracting.68
The rule under consideration is thus primarily intended to protect the contractual
equilibrium and the preservation of proportionality among the parties’ obligations.69
In this respect, it can be affirmed that the measurement of the “excessive onerous-
ness” must be carried out objectively, without regard to the subjective conditions of
66
Accordingly, e.g., Galgano (2002) 575.
67
For a similar statement, see, e.g., T.A.R. (Regional Administrative Court) Puglia (Bari), 13 May
2010, n. 1865, in Foro amm. TAR, 2010, 1820.
68
In this sense, e.g., A. Gambino (1960) 416.
69
Cf. T.A.R. (Regional Administrative Court) Lazio (Rome), 1° August 2005, n. 6056, in Foro
amm. TAR, 2005, 2451.
178 M. Torsello
the promisor.70 Such measurement, however, cannot benefit from any predetermined
figures setting the threshold beyond which the remedy should be made available.
Instead, the analysis must be carried out on a case by case basis,71 and the main
guidance offered to the interpreter consists of the combination of criteria laid out in
Article 1467, according to which the promisor may be discharged from his contrac-
tual obligations only upon the occurrence of a contingency which is extraordinary,
unforeseeable and beyond the scope of the risks that are allocated on the promisor
under the contract at hand.
From a rather different perspective, the effects of the financial and economic
crisis may lead to the discharge of the promisor from his contractual obligations to
the extent that such effects may be regarded as causing supervening impossibility of
performance under Article 1256 c.c..
The appearances of such exceptional circumstances are more difficult to assess.
This is primarily because of the rather strict position of Italian case-law in this
respect. Indeed, Italian courts seem not willing to abandon the approach under
which, the supervening impossibility relevant under Article 1256 c.c. «must possess
the characters of objectivity and absoluteness, so as to represent an insurmountable
obstacle to performance».72
Under the strict interpretation of the requirement that impossibility be an abso-
lute one, it is apparent that the effects of the financial crisis are very unlikely to lead
to the discharge of the promisor from his contractual obligations. Conversely, as
already pointed out, Italian scholars have largely adopted a more flexible approach
with respect to the “absolute” character of impossibility, under which any perfor-
mance that cannot reasonably be expected from the promisor in the circumstances
is “impossible” to the effects of Article 1256 c.c..
It is apparent that, if the more flexible approach toward impossibility of perfor-
mance were to be adopted, the remedy at hand would provide a powerful tool avail-
able in situations resulting from the financial crisis. In particular, contingencies that
could be subject to the remedy at hand would include situations that do not have a
direct impact on the contract, so as to create an insurmountable obstacle to perfor-
mance, but rather change the circumstances surrounding the contract. The tighten-
ing of access to credit and the general economic slowdown could fall in this group.
It should be noticed, however, that impossibility of performance must not only be
absolute, but also be objective in order for it to lead to the termination of contract.
Accordingly, even if the notion of absoluteness were loosened, as proposed by
Italian scholarship, the results of the financial crisis would still most likely not qual-
ify as impossibility under Article 1256 c.c., in that they are unlikely to lead to
“objective” impossibility of performance.
70
Accordingly, Sacco (2004) 677; Cass. (Italian Supreme Court), 20 July 1956, n. 2809, in Giur.
comm. 1956, I, 1641.
71
Accordingly, e.g., Cass. (Italian Supreme Court), 8 August 2003, n. 11947, in Giust. civ., Mass.
2003, 7–8.
72
See, among many others, T.A.R. (Regional Administrative Court) Lombardia (Milan), 21 May
2013, n. 1337, in Foro amm. TAR, 2013, 1450 (translation by the Author).
It has been shown that in most cases the doctrine of impossibility of performance
cannot support the claim of a promisor willing to be discharged from his obligations
on the basis of the effects of the financial and economic crises. A more fruitful
approach might be the one based on the doctrine of failure of presupposed condi-
tions (“presupposizione”), which provides a valuable tool to deal with situations
resulting from the financial crisis.
Several different contingencies, including the tightening of access to credit and
the general economic slowdown, can be brought within the scope of the doctrine
with relative ease. However, the party claiming discharge from his contractual obli-
gations is under the burden of proving not only the existence of the presupposed
common assumption on which the parties fundamentally based their contractual
consent, but also the unpredictable failure of that assumption to exist, to persist into
existence, or to materialize.
More specifically, the analysis of case-law on this matter indicates that there can
be multiple appearances of situations where the remedy of failure of presupposed
conditions applies. On the other hand, the prerequisites that must be proved by the
promisor willing to avail himself of this remedy include that the presupposed situa-
tion in fact or in law must not have been regarded as uncertain73; that it must have
been common to both parties to the contract,74 or at least cognizable to the counter-
party75; and that the performance of the party claiming the failure of a presupposed
condition must not have been rendered yet.76 To the extent that the prerequisite are
met, the doctrine under consideration may lead to the discharge of the promisor
from his contractual obligations. Most importantly, the doctrine can apply irrespec-
tive of any measurement of quantitative alteration of the value of the performance
owed by the promisor.
10.6 Rights of the Disadvantaged Party upon the Occurrence

of Exceptional Supervening Events
Unlike other national77 and supranational78 systems of contract law, which provide
for remedies such as revision or renegotiation, aiming at preserving the contract into
existence, upon the occurrence of a contingency that alters to a relevant extent the
73
Cf. Trib. (Court of first instance) Sondrio, 31 May 2000, in Foro it., 2000, I, 2832; Cass. (Italian
Supreme Court), 4 August 1988, n. 4825, in Giur. it., 1989, I, 1, 67.
74
Cf. Trib. (Court of first instance) Sondrio, 31 May 2000, supra n. 73; App. (Appellate Court)
Trieste, 12 October 1987, in Nuova giur. civ. comm., 1989, 23; Cass. (Italian Supreme Court), 6
June 1985, n. 3366, in Foro. it., Mass. 1985.
75
Trib. (Court of first intance) Verona, 2 July 1981, in Giur. it., 1983, I, 2, 248.
76
Cass. (Italian Supreme Court), 6 June 1985, n. 3366, supra n. 74.
77
See, for instance, § 313 of the German BGB.
78
See, for instance, Article 6.2.3 of the Unidroit Principles of International Commercial Contracts;
for a comment on this and similar provisions used in international contract practice, see Frignani
and Torsello (2010) 293.
180 M. Torsello
original status quo of the contact, Italian law only provides for the remedy of termi-
nation of contract. This statement applies to all types of general contract remedies
considered above, namely supervening impossibility of performance, supervening
excessive onerousness or devaluation of performance, and supervening failure of
presupposed conditions. Conversely, different solutions are provided for also under
Italian law with respect to individual contracts.79
Indeed, in the event of supervening impossibility of performance, under Article
1256 c.c. the party whose performance became impossible is discharged from his
obligations,80 whereas under Article 1463 c.c. that same party is prevented from
requiring performance from the counterparty and must return what he received in
the event that performance had already been rendered.81 In a way, it seems possible
to affirm that the combination of the two provisions just mentioned suggests that the
doctrine of impossibility of performance operates on the premise that impossibility
frustrates the purpose pursued by the parties to an extent that the best solution to
such situation is the complete unwinding of the contract by means of its termination
and restitution in full (if possible) of whatever performance has already been
rendered.
In light of the foregoing, it is arguable that also the doctrine of presupposed con-
ditions operates on similar premises.82 Indeed, also this doctrine justifies termina-
tion of contract on the grounds that the purposes pursued by the parties were
frustrated by the occurrence of the supervening event, or the failure to materialize of
a contingency that the parties had taken for granted.83 Under these circumstances,
there is arguably no reason to compel the principle of “pacta sunt servanda”,
because the goals for which the pactum was entered into cannot be pursued. Either
party to the agreement is thus granted the right to bring the contract to an end.
Finally, also under Article 1467 c.c. the supervening excessive onerousness of
performance justifies the claim for contract termination brought by the party disad-
vantaged by the supervening event, provided that the latter did not participate in
causing the event.84 As a general rule, the disadvantaged party is granted only the
possibility of claiming termination of the contract, to the exclusion of any other
alternative remedy.85 This means that the disadvantaged party does not have any
legal tool to impose a revision or renegotiation of the contract. Therefore, either he
decides to preserve the contract, thus waiving his remedies for the supervening cir-
cumstances, or he decides to avail himself of the remedy of contract termination,
thus bringing the contract to an end. In order to fully understand the rationale of this
79
Cf. Article 1664 of the Italian c.c., on which see supra, n. 15, and the accompanying text.
80
Cf. Cass. (Italian Supreme Court), 15 November 2013, n. 25777, supra n. 17.
81
Cf. Cass. (Italian Supreme Court), 24 April 2009, n. 9816, in Guida al dir., 2009, n. 26, 52.
82
For a similar remark, see, e.g., Roppo (1971) 265.
83
See, e.g., Pennazio (2013) 80.
84
Accordingly, Cass. (Italian Supreme Court), 23 February 2001, n. 2661, in Foro it., 2001, I, 3254,
with comment by Mastrorilli, Sopravvenienza imputabile ed eccessiva onerosità.
85
For a similar statement, see, e.g., Macario (1990) 567, commenting Cass. (Italian Supreme
Court), 18 July 1989, n. 3347.
rule, however, it should be anticipated here that the right granted to the disadvan-
taged party to terminate the contract must be coordinated with the option given to
the unaffected party, who can prevent the termination of the contract by offering an
equitable adjustment of the contract.86 Accordingly, while the disadvantaged party
cannot impose a revision or renegotiation of the contract, the unaffected party can
react to the remedy of termination by offering to adjust the contract, thus precluding
the effectiveness of the termination declared by the disadvantaged party.
An exception to the rule that the disadvantaged party is granted only the possibil-
ity of claiming contract termination applies to gratuitous contracts, which can be
characterized as contracts where only one party undertakes obligations.87 In gratu-
itous contracts, if performance becomes excessively onerous, the promisor may
require a reduction or modification of his obligations, rather than termination, so as
to cause the competent court to adjust equitably the contents of the obligations owed
by the promisor.88
The provision at hand is of particular interest here, in that it seems to be based on
a rationale different from the one supporting the rule applicable to commutative
contracts under Article 1467 c.c..89 Indeed, the latter protects the reciprocal equilib-
rium of contractual performances and allows for contract termination when such
equilibrium is significantly altered by a supervening event (unless the party non
affected by the supervening event offers an equitable adjustment of the contact).
The rule under Article 1468 c.c., on the other hand, cannot be held to protect the
equilibrium of the contract for the very simple reason that in a gratuitous contract
only one party is bound to perform his promises, without there being any corre-
sponding counter-performance. Therefore, the justification for the rule laid out in
Article 1468 c.c. must be found in a different doctrine (namely, the so-called doc-
trine of “attuabilità”, i.e., “viability”),90 under which the request for adjustment of
the promisor’s obligation is justified on the sole grounds of the change of surround-
ing circumstances, in which the performance must be effected. In this respect,
although distinct from those applicable to commutative contract, the requirements
for the equitable adjustment under Article 1468 c.c. must, nonetheless, be traced
back to the unitary general principle of “rebus sic stantibus”91; however, they apply
independently from any comparison to a corresponding counter-performance, but
rather as expression of the general duty to act in good faith in the context of a con-
tractual relationship.92
86
See infra, Section VI.
87
For an overview of the doctrinal debate regarding the scope of Article 1468 c.c. and the different
types of contracts falling within the scope of the said provision, see Al Mureden (2004) 23, in
particular sub note 34.
88
See Cass. (Italian Supreme Court), 20 January 1982, n. 436, in Giust. civ., Mass. 1982, fasc. 1.
89
For papers supporting this conclusion, see Boselli (1952) 100, Tartaglia (1980) 173.
90
See, in particular, Betti (1955) 199.
91
Cf. Sacco (2004) 718.
92
For a similar approach, see, e.g., Gallo (1992) 433.
182 M. Torsello
Most importantly, the different rationale and doctrine underlying Article 1468
c.c. justifies the difference in the type of remedy made available to the promisor
affected by the supervening event, which, in the event of gratuitous contracts, con-
sists of the equitable adjustment of the promisor’s obligation.93
10.7 Position and Claims of the Unaffected Party

upon the Occurrence of Exceptional Supervening
Events
The rule on supervening excessive onerousness of performance under Article 1467

c.c. makes a clear distinction as regards the position of the parties and their possibil-
ity to avail themselves of the remedy at hand. This approach makes a sharp distinc-
tion between the remedy under consideration and other remedies available in the
event of supervening circumstances. In fact, in the event of supervening impossibil-
ity of the promisor’s performance, both the promisor and the promisee are granted
the right to put forward a claim to bring the contract to an end, to be discharged from
any future obligations and, if necessary, to obtain restitution of performances
already rendered. In this regard, the parties may be regarded as being on a relatively
equal footing.
Similarly, in the event of failure of presupposed conditions, both parties have the
option of bringing the claim for contract termination, although it is apparent that, in
practice, one party will in most cases have a greater interest than the other in bring-
ing the contract to an end. In any event, as a result of termination, both parties will
be discharged from their respective contractual obligations. Again, the parties are
placed on a relatively equal footing.
The situation is rather different as regards the remedy of contract termination
available on the grounds of the occurrence of supervening excessive onerousness of
performance of the promisor under Article 1467 c.c.. Indeed, upon the occurrence
of the contingencies considered by the provision in question, exceptional
circumstances alter the equilibrium of the contract, to the effect that it is generally
possible to identify one party to the contract who is negatively affected by the occur-
rence of the exceptional circumstances, and another party to the same contract who
benefits from the changed circumstances. The rule under Article 1467 c.c. grants
only to the party who is negatively affected by the supervening circumstances the
right to bring a claim for contract termination. As already mentioned, however, that
radical remedy is granted on a take-it-or-leave-it basis, in that the disadvantaged
party has no alternative options and must decide either to put forward the claim for
termination to the effect of bringing the contract to an end, or to bear the burden of
the additional costs resulting from the exceptional circumstances.
93
In practice, the exercise of the right granted by the provision at hand requires an action in court,
and a constitutive declaratory decision rendered by the court.
On the other hand, however, the party who was not negatively affected by the
supervening circumstances may prevent termination of contract by offering to
adjust his own performance so as to re-establish the original equilibrium of the con-
tract.94 This may be done, for instance, by a purchaser of goods offering an increase
in the purchase price as a result of the increase of the manufacturing costs to be
borne by the seller.
The solution adopted by the Italian legislator offers to both parties to the contract
the option to take an active role in the management of the effects of the supervening
circumstances. First, it creates a mechanism that relies on the promisor’s choice in
order to signal whether the alteration of the value of performance has deprived the
promisor of the interest in preserving the contract. This result is obtained by placing
the promisor before the alternative between performing at the original conditions
(notwithstanding the effects of the supervening circumstances), or bringing the con-
tract to an end.
In the event that the promisor decides to terminate the contract, the promisee is
then granted the right to prevent termination by offering an equitable adjustment of
the contract.95 The tool offered to the unaffected promisee is technically a defense
against the claim for termination brought by the plaintiff, while in substance it
serves the purpose of allowing the unaffected promisee to preserve the contract.96
It should be noted that the dynamics of equitable adjustment of the price take
place entirely among the parties, whereas an active intervention by the court is pre-
cluded. Indeed, it is well-established in Italian case law that the court may only
decide whether the increased performance offered by the promisee succeeds in pro-
viding an “equitable adjustment”.97 If the court concludes that the adjustment
offered is equitable, contract termination is precluded and the parties are bound to
the adjusted terms of the agreement98; if the court concludes that the adjustment
offered fails to equitably adapt the parties’ performances, then the court cannot but
declare the contract in question avoided. Under no circumstances can the court
modify the substantive contents of the unaffected party’s offer for equitable adjust-
ment. In other words, the court is not granted any active role in the determination of
the adjustment offered by the unaffected party. The court can only decide whether
what is offered is equitable or not.
94
Cf. Del Bene (1997) 198. For a court decision applying the rule under consideration, see Cass.
(Italian Supreme Court), 11 January 1992, n. 247, in Giur. it., 1993, I, 1, 2018, with comment by
Magni.
95
For a recent application in case law, see Cass. (Italian Supreme Court), 25 March 2009, n. 7225,
in Giust. civ., 2010, 1, I, 111, with comment by Carnicelli.
96
The pursuance of the goal of contract preservation is highlighted, among others, by T.A.R.
(Regional Administrative Court) Campania (Naples), 4 March 2005, n. 1625, in Foro amm. TAR,
2005, 783.
97
See, among many others, Cass. (Italian Supreme Court), 11 January 1992, n. 247, supra n. 94.
98
Cf., e.g., Cass. (Italian Supreme Court), 13 January 1984, n. 275, in Giust. civ., 1984, I, 2535,
stating also that the evaluation of the adjustment must be made as of the date of performance, and
not as of the date of conclusion of the contract.
184 M. Torsello
In this regard, it is worth noting that the offer for adjustment by the defendant
willing to prevent the termination of the contract does not need to re-establish the
very same equilibrium, which existed prior to the occurrence of the exceptional
circumstances. Indeed, court decisions have consistently maintained that the adjust-
ment is to be considered equitable to the extent that it brings the relationship between
performances back to a situation, which ex ante would not have justified the claim
for termination.99 In other words, the offer for equitable adjustment may well be
formulated by the defendant in terms that leave on the disadvantaged plaintiff the
portion of negative effects resulting from the exceptional circumstances, which may
be deemed to fall within the scope of the risks undertaken by the plaintiff by virtue
of the contract in question. Therefore, what needs to be rebalanced is not the con-
tract as a whole, but only the excessive onerousness thereof, that is, what is beyond
the scope of the risks allocated to the promisor.
10.8 Closing Remarks on Italian Contract Law

from a Comparative Perspective
The overview of Italian contract law regarding the effects of the financial and eco-
nomic crises on the binding force of contracts has provided a manifold picture.
Multiple remedies are made available by the legal system to a promisor affected by
supervening exceptional circumstances. However, the analysis of existing case-law
has shown that the promisor’s possibilities to avail himself successfully of those
remedies are not as many as one could expect.
With regard to the multitude of remedies available to a promisor affected by
supervening exceptional circumstances, not only does the Italian legal system pro-
vide in Article 1469 c.c. for an express provision granting to the promisor affected
by a supervening excessive onerousness of performance the possibility of terminat-
ing the contract, but it also provides for a non-codified doctrine of presupposed
conditions, which in fact broadens the scope of application of the general rule of
“rebus sic stantibus”.
In particular, the rule on supervening excessive onerousness of performance has
played a remarkable role not only domestically, but also from a comparative per-
spective. In fact, the Italian rule has inspired several similar solutions adopted in
other national jurisdictions, as well as in supranational instruments.100 Moreover,
the largely prevailing view in Italian scholarly writings and court decisions is that
the innovation brought by the new provision on supervening excessive onerousness
of performance does not prevent the application of another doctrine dealing with
supervening circumstances, namely the doctrine of presupposed conditions. Under
this doctrine, the possibilities granted to the promisor to claim a discharge from his
99
Cass. (Italian Supreme Court), 11 January 1992, n. 247, supra n. 94.
100
See supra, notes 20–23 and the accompanying text.
contractual obligations due to supervening exceptional circumstances are increased.

Indeed, the doctrine of presupposed conditions applies to situations where the rule
on supervening excessive onerousness would not be available. This is the case, in
particular, as regards situations that have not directly altered the equilibrium of the
contract.
The different remedies mentioned above, and possibly also the remedy of super-
vening impossibility of performance (the more so if the notion of impossibility is
loosened so as to include cases of impracticability), are all expressions of the gen-
eral principle of “rebus sic stantibus”. Accordingly, Italy can certainly be included
among the legal systems that accept that principle and that treat it as a fundamental
principle of contract law.
The foregoing, however, should not be overestimated and should not induce one
to think that Italian law degrades the principle of “pacta sunt servanda” to a second-
ary role. To the contrary, the overview of Italian case-law has shown that the sanctity
of contract is still the milestone of the system and that, notwithstanding the general
acknowledgment of the availability of an exception under the principle of “rebus sic
stantibus”, courts are very reluctant to hold that the promisor is discharged from his
contractual obligations and this solution appears to be adopted only in the event of
truly exceptional circumstances.
Among the legal systems that provide for remedies based on the principle of
“rebus sic stantibus”, Italy stands out also for another peculiarity of interest. In fact,
although different solutions are provided with respect to individual types of
contracts,101 under Italian general contract law the only remedy available to the
promisor affected by supervening exceptional circumstances is the remedy of termi-
nation of contract.
Compared to the broader availability of remedies offered in other legal systems,
which include renegotiation, revision, and the like, the Italian solution may be
regarded with suspicion. It should be noted, however, that the solution limiting to
the sole termination of contract the remedies available to the party affected by the
supervening circumstances may also have positive effects. Indeed, to the extent that
the contract subject to termination was aimed at transferring goods that are traded in
a functioning market, it can be argued that contract termination is the best solution
to assure that the contract price be re-negotiated and re-established at the new
market conditions. In fact, the purchaser under the terminated contract finds himself
in a competitive market scenario, to the effect that he can choose between the offers
for goods from the previous seller, as well as from new sellers, who can be best
equipped to deal with the new state of the world resulting from the change of cir-
cumstances. The market mechanism thus leads to the determination of the “new”
price for goods in a way that is much more likely to reflect the “real” market price
than any possible price adjusted by a court, or by any third party involved in a
mechanism of contract revision.
Moreover, also with respect to the renegotiation of contract, it seems possible to
argue that, given the effect of the supervening circumstances, it is preferable to favor
101
See supra, note 15 and the accompanying text.
186 M. Torsello
a mechanism leading to a renegotiation in a competitive market than a mechanism

imposing renegotiation among the very same parties to the terminated contract.
The foregoing does not, of course, overlook the benefits of a revision operated by
the court or a third party, and of a renegotiation imposed to the very same parties to
the frustrated contract. Those benefits consist, first of all, of the preservation of the
contract and the reduction of the transaction costs of a fully new re-negotiation in a
competitive market. Without prejudice to the foregoing, however, it is argued here
that in many instances the advantages deriving from a new negotiation in a competi-
tive environment largely outdo the savings of transaction costs obtained by means
of the preservation of the pre-existing transaction.
To the extent that the foregoing reasoning were to apply, one might conclude that
in the very limited cases in which the effects of the financial and economic crises
were to be regarded as justifying the derogation to the binding force of contract, the
most efficient way to allow such derogation would be to allow for termination of the
contact, thus causing the complete unwinding of the transaction and placing the par-
ties back to the market to (re-)negotiate under the new contingencies.
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by Magni.
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Chapter 11
Effects of a Bubble Economy on the Binding
Force of Contracts: The 1990s Experience
of Japan and Its Implications
Shugo Kitayama
Abstract This report focuses on the problem of whether financial crises can be
covered by the doctrine of change of circumstances. The report describes two types
of lawsuits caused by the biggest financial crisis in Japan: the 1990s bubble crash.
One type involves the “sub-lease” contracts, most famous at that time, in which
incorrect predictions of future economic changes were especially significant. The
other type involves claims against country club management companies for the
return of deposits, a rare situation in which the doctrine of change of circumstances
was claimed in court. In conclusion, two particular characteristics in Japan will be
observed. One is that companies are required to predict future changes in economic
circumstances. The other is that the most popular dispute resolution method is the
interpretation of contracts, rather than the application of the doctrine of change of
circumstances.
11.1 Introduction
This report addresses Japan’s experience with the bubble economy and the subse-
quent crash in the late 1980s, which triggered varied contractual disputes and law-
suits. This study reveals certain tendencies in Japanese court decisions related to
economic and financial problems and focuses on the above period because the 2008
worldwide financial crisis did not strongly affect the Japanese economy.
The expansion and burst of the Japanese economic bubble that peaked in 1990
and 1991 unfolded in the following manner. In the late 1980s, financial liberaliza-
tion and low interest rate policies resulted in a surplus of money in the economy.
Stock prices rose rapidly, with the Nikkei average stock price spiking from approxi-
mately JPY 13,000 in January 1986 to approximately JPY 39,000 in December
1989. In January 1990, this price witnessed a sudden decline, and by August 1992,
S. Kitayama (*)
School of Law, Seikei University, Tokyo, Japan
e-mail: kitayama@law.seikei.ac.jp

192 S. Kitayama
it was down to JPY 14,000. Moreover, land price rose, especially in big cities; in the
region around Tokyo, using the 1983 prices as the benchmark, land prices rose by
250 % by 1991 and subsequently witnessed a rapid decline in 1992. Financial spec-
ulation grew, and targeted products ranged from artistic products and country club
memberships to financial products.
After the bubble burst, many types of contracts, drawn on the assumption that
prices of stocks, land, and other goods would continue to rise, became the subject of
disputes and lawsuits arguing for their rescission and revision. This study focuses on
two types of disputes, each involving several court decisions and relating significantly
to the problem of the pacta sunt servanda (agreements must be kept) principle.
Sub-lease cases and repayment claims of deposits for country club rights are the
two types of disputed contracts that were affected. Analyzing the cases and deci-
sions related to these disputes provides a succinct overview of how the Japanese
courts addressed the difficult problem of changed economic circumstances. Finally,
this study raises general questions on the effects of financial crises on the binding
force of contracts.
Japan’s legal doctrine for addressing unexpected circumstances is called the doc-
trine of change of circumstances. It is recognized as a case law (in legal writings) but
does not appear in Japan’s Civil Code. This doctrine admits the rescission or revision
of contracts if (a) the circumstances that had been the basis for drawing a contract have
changed (b) the change in circumstances could not have been foreseen by the parties
(c) the change in circumstances was not due to the actions of either party, and (d) bind-
ing the parties to the original contract fundamentally violates the principle of good
faith. Although the doctrine of change of circumstances is admitted as a case law,
courts do not apply it easily in actual cases. In particular, the Supreme Court, after
World War II, did not affirm the application of the doctrine in any case until now.
The cases discussed in this study clarify why the doctrine of change of circum-
stances has seldom been applied, especially in cases of change of economic
circumstances.
11.2 Case Decisions
11.2.1 Sub-lease Lawsuit Decisions

11.2.1.1 Background
Structure of the Sub-lease Contracts After the bubble burst, many lawsuits were
raised especially in Tokyo. Thus, lower courts proposed various legal theories on
the matter, and the Supreme Court finally proposed a decisive, unified, but not nec-
essarily persuasive theory.1
1
Before the decision of the Supreme Court in 2003, about 50 lower court decisions can be found
in the Japanese database LEX/DB.
11 Effects of a Bubble Economy on the Binding Force of Contracts: The 1990s… 193
Sub-lease usually refers to a re-lease from the original lessee to another. In Japan,
however, sub-lease refers to a whole project involving owners of a building (lessors)
and real estate agents (lessees) in which land owners construct office buildings at
their own expense (usually by borrowing money from banks) and rent the building
as a whole to real estate agents, who re-rent them in parts to many tenants. Tenants
pay rent to the real estate agents, who in turn pay rent (less than the sum collected
from tenants) to the owner. The real estate agent sources the tenants and is respon-
sible for administration of the tenants and the building itself; thus, the agent’s profit
is the difference between the rent collected from tenants and rent paid to the owner.
Rent paid to the owner is usually fixed by sum or by rate, facilitating the owner’s
expectations of a certain amount of income regardless of the number and real pay-
ments made by tenants.
In the boom phase of the bubble, under the assumption that both land prices and
office building rents would continue to rise, terms and conditions of automatic
increases in rent were frequently included in sub-lease contracts. Under these condi-
tions, the rent paid by agents to owners would increase without notice at a certain
rate after a fixed period elapsed.
However, because of the bubble burst, land prices and tenant rents began to fall,
making it difficult for the agents (lessees) to pay the increased rent stipulated by the
terms and conditions. Subsequently, owners (lessors) were required to continue to
repay the borrowed money to banks, thereby requiring a certain level of cash inflow.
Therefore, strict enforcements regarding terms and conditions involved in auto-
matic rent increase became a serious legal problem.
Art.32 of Land and House Lease Law Japan’s Land and House Lease Law stipu-
lates the following regarding future changes in rent:
Art.32 (1) When the burden against the land or house increases or decreases in light of taxes
to the house or land or other reasons; when economic circumstances change by the increase
or decrease in the price of the house or land or by other reasons; or when the house rent is
inappropriate compared with the same kind of house in the neighborhood, notwithstanding
the contract’s terms and conditions, the parties can request an increase or decrease of the
rent on the house in the future. However, if a condition stipulates that the rent will never
increase during a certain term, such a condition is valid.2
In legal literature, Art.32 is considered as a type of materialization of the doctrine

of change of circumstances. Thus, a difficulty emerged in sub-lease cases: which
would take precedence, Art.32 or the automatic rent increase terms?
11.2.1.2 The Case Judged by the Supreme Court
The case wherein the Supreme Court addressed the sub-lease dispute for the first
time is as follows:
2
In Japan, the Land and House Lease Law can be applied to both residential and office properties.
Thus, Art.32 (1) is applicable to office rent agreements including sub-lease contracts.
194 S. Kitayama
Facts of the Case In 1991, Company X (hereafter X) accepted the recommenda-

tion of the sub-lease schema by Company Y (hereafter Y) and constructed an office
building on X’s land by borrowing JPY 18 billion from a bank; X then rented the
completed building as a whole to Y, which in turn subleased the floors to tenants. In
the agreements between X and Y, a clause stated, “the rent contract is valid for a
duration of 20 years. The annual rent is JPY 2 billion, which will increase 10 % of
the immediately preceding rate every three years” (Art.6 (1)). In addition, another
clause stated that “X and Y can renegotiate the percentage increase of the rent in
case it becomes inappropriate because of drastic changes in economic conditions,
such as rapid inflation” (Art.6 (3)).
After drawing the contract, Y requested a decrease in rent a total of four times,
citing Art.32 of the Land and House Lease Law and a decrease in office rent due to
the burst of the bubble. Thus, Y claimed that it owed X JPY 0.54 billion per year in
rent since March 1999. Moreover, the office rent Y collected from tenants totaled
JPY 1.4 billion in 1994, JPY 0.55 billion in March 1999, and JPY 0.72 billion in
April 1999 and thereafter.
X sued Y for the non-payment of increased rent as per the automatic rent increase
clause, to which Y filed a countersuit against X to recognize that this rent should be
JPY 0.54 billion per year.3
The primary issue raised in court comprised two related questions: (a) whether
this sub-lease contract was a house rent agreement applicable under the Land and
House Lease Law (Art.32 of the Law); X stated the agreement was a typical con-
tract not subject to the Land and House Lease Law, and (b) notwithstanding the
existence of the automatic rent increase clause, whether the request for rent decrease
based on Art.32 in the Land and House Lease Law was permissible.
Decision of the Tokyo District Court, August 28, 1988 Decision1–1 “When
drawing the contract, X and Y expected a change in the rent if economic circum-
stances changed according to Art.6 of this contract, implying that both parties
excluded the possibility of rent increase and decrease on the basis of Art.32 of the
Land and House Lease Law”.
“It is impossible to think that Art.6 of this contract is void because of the viola-
tion of Art.32 of the Land and House Lease Law. …It is unwise for the court to
intervene in the private autonomy and deny the original effect of the agreement;
moreover, in consideration of the content and purpose of this contract, Art.32 of the
Land and House Lease Law should be deemed non-applicable to this contract. In
addition, even if, with such a result, Y suffers damages because of the unexpected
changes in the rent market, the disadvantage from the mistaken expectation should
not be owed by Y, who admitted and bore, at the time of drawing the contract, the
guarantee of the rent and all other risks.”
3
A claim to decrease the rent on the basis of Art.32 is recognized immediately in effect to avoid the
judicial strategy of the lessor prolonging the trial. Of course, in cases where the parties cannot
agree on a new rent, the court will make the final decision whether the lessee’s claim is just.
“Therefore, because Art.6 of this contract is valid, X can request the difference
between the automatically increased rent and the rent that Y actually paid, and Y
cannot claim the decrease of the rent on the basis of Art.32 of the Land and House
Lease Law.”
Decision of the Tokyo Court of Appeal, January 25, 2000 Decision 1–2
“Although the contract takes a house lease form, which is one of the typical con-
tracts in the Civil Code, in light of its substantive function and contents, it should be
considered an atypical contract with the nature of entrusting a business, whereby the
application of the Land and House Lease Law is inappropriate; moreover, only lim-
ited effects that will not conflict with the contract’s purpose, function, and nature
should be admitted.”
“As for this contract, the institution of decreasing the rent from Art.32 of the
Land and House Lease Law is modified by the adjustment clause of Art.6 of this
contract. Therefore, limited factors, such as its procedure and the effect of the
claims, are applicable.”
“It should be noted that, because of the economic circumstances (the declining
property market and rent building market) beyond the responsibility of both the
contracting parties, the rent between X and Y and the re-rent between Y and tenants,
indicate a considerable disparity in that the first and the third request by Y to
decrease the rent does decrease the extent of modifying the automatic 10 % price
increase to 0 % on the basis of Art.6 (3) of the contract.”
“If Y’s requests to decrease the rent are deemed as requests that are based on the
general clause of the Civil Law―the doctrine of change of circumstances―the
conditions for applying the doctrine are as follows: (a) the change in circumstances
since the drawing of the contract should not be the parties’ responsibility, and (b) the
change in circumstances was so aberrant that the parties did not and could not have
foreseen it. However, Y is a large company knowledgeable about the negotiation
and rental of real property, and the time when this contract was drawn was precisely
at or just after the beginning of the burst of the bubble. …Therefore, Y could have
foreseen (at least in the near future) the declining property values and the rent
market. In addition, comparing the time the contract was drawn with the time of Y’s
requests, there was no change in prices or change in the value of money; thus, no
long-term inequity between the parties exists for the application of that principle.”
Both X and Y appealed to the Supreme Court.
Decision of the Supreme Court October 21, 2003 (Civil Case Law Report, Vol.
57, No. 9, p. 1213) Setting Aside and Referring Back Decision 1–3 “The agree-
ment contract facilitated Y by X to utilize the rented building for which Y paid rent
to X; therefore, it is clear that this contract is a lease of a house, to which the Land
and House Lease Law as well as Art.32 are applicable.”
“Although there exists an automatic rent increase clause in this contract, Art.32
of the Land and House Lease Law is a mandatory statute that cannot be excluded by
the automatic rent increase clause (see the Decision of the Supreme Court on May
15, 1956, and the Decision of the Supreme Court on April 20, 1981); therefore, the
196 S. Kitayama
parties of this contract are not necessarily permitted to request the increase or
decrease of the rent based on Art.32.”4
“This contract comprises parts of Y’s sub-lease project and the sum of rent, and
the automatic rent increase agreement is the proposition for X to invest significant
capital in Y’s project.…These facts are important elements for the parties when
determining the original rent; thus, this should be fully considered from the perspec-
tive of equity to judge the propriety of the request for decreased rent based on Art.32
of the Land and House Lease Law (whether conditions in the article are satisfied),
and the calculation of proper rent.”
“When determining the propriety of the price decrease request and the sum of the
rent, what the parties of the lease contract consider and other circumstances should
be examined in total, along with how the parties determined the original rent, the
details of the inclusion of the automatic rent increase clause, and in particular, the
difference between the original rent and the rents of similar neighboring buildings,
Y’s expectation of income and expenditure from the sub-lease business (the parties’
recognition of the change in rent rates compared with the rent from tenants), and X’s
schedule of repaying the deposit money and debt to the bank.”
11.2.1.3 A Minority Opinion of the Supreme Court Judge

in Another Case
After the above decision, the Supreme Court’s opinion was reiterated by similar
decisions issued by other two chambers of the Court (the Supreme Court decision
of October 23, 2003, and that of November 8, 2004). However, in the latter decision,
Judge Fukuda showed the following minority opinions:
Judge Fukuda ’s Minority Opinion Decision 1–4 “A sub-lease contract is, even
though part of the contract has the form of lease contract, precisely a joint venture
of coordination between the land owner (who supplies not only the land but also the
construction of a building suited for the venture), the rental agent, the bank that
finances the money necessary to construct the building, and the design engineering
office that designs and administrates the construction of the building. The real estate
lease contract, which comprises one part of the venture agreement, is by nature
entirely different from the ordinary lease contracts to which the Land and House
Lease Law is applied.”
“If the content of the venture agreement conflicts with external circumstances
(e.g., natural disaster) and clearly requires modification, a possible theory is, for
example, the doctrine of change of circumstances, which underlies all contracts.
Therefore, an automatic rent increase clause, which is part of the profit division
clause between the parties, can be modified. In such cases, the object of revision
4
Legal literature notes that the two referenced cases (1956 and 1981) here concerned themselves
with the effects of a renegotiation clause; therefore, they are not proper precedents for this case,
which concerns an automatic price increase clause.
should be not only the automatic rent increase clause but also the other agreements
related to the division of profits from the joint venture, for example, agreements in
which financial conditions offered by banks are closely connected with the contents
of the sub-lease contracts (such as when rents from tenants are transferred from the
agent to the owner through the bank’s account, and the refund from the owner to the
bank is done from the account by installments, i.e., finance agreement is substan-
tially integrated with the sub-lease agreement).”
The decision also stated, however, “regarding this case, concerning the facts
founded by the court below, the conditions that justify the application of the doc-
trine of change of circumstances are not recognized.”
11.2.1.4 Controversies on the Decision of the Supreme Court
What type of conclusion can be drawn from the decision of the Supreme Court
regarding sub-lease contracts on the problem of the effects of financial crises on the
binding force of contracts?
First, the Supreme Court did not adhere to the principle of pacta sunt servanda.
Applying Art.32 of the Land and House Lease Law, the Court admitted the possibil-
ity of modifying the original contract terms (i.e., the automatic rent increase clause).
Second, by applying Art.32, the Court instructs not only the simple application of
Art.32 but also its application in light of the minute circumstances surrounding the
contract. This comprises a request to the lower courts to complementarily interpret
the contracts on the basis of the parties’ intentions. Third, the impact of financial
crises on the binding force of contracts was not rescission of the contract but the
revision in sub-lease cases.
However, several critiques exist in legal literature. The most arguable point is
whether Art.32 of the Land and House Lease Law is a mandatory statute. Special
terms and conditions included in lease contracts to automatically calculate current
rents are validated by several previous lower courts’ decisions. In addition, in case
the automatically calculated rent becomes unworkable, the court first denies the
binding force of the terms and conditions by applying the doctrine of change of
circumstance, and then determines the appropriate rent according to Art.32. As for
sub-lease contracts, such lower courts’ decisions include the following:
Decision by the Tokyo District Court June 10, 1997 Decision 1–5 “The automatic
rent increase clause in this case is reasonable because of the succession and long
duration of the lease contracts, but in light of Art.32 of the Land and House Lease
Law, in case the unforeseeable change in economic circumstances not foreseen when
drawing the contract made the enforcement of the original contract unreasonable, the
automatic rent increase clause could be nullified by the application of the doctrine of
change of circumstances. This automatic rent increase clause was agreed upon in
December 1989, when standard office rents in the building were largely expected to
increase; it was implausible to believe that X and Y had agreed to the clause under
the expectation of the drastic fall in the rent that would continue until 1992. It must
198 S. Kitayama
be said that Y, which is a large property administration company in Japan, was unable
to predict the present economic situation when drawing the contract. …Considering
such a change of economic circumstances and the response of the expert witness, the
premise of the concluding contract in this case no longer exists; therefore, enforcing
the automatic rent increase would be intolerably unreasonable. Thus, the clause was
no longer in effect between April 1, 1993 and April 1, 1995.”5
According to legal literature, if the lower courts had reflected on how this deci-
sion was to be judged, Judge Fukuda’s minority opinion appears better reasoned
than the majority opinion of the Supreme Court.
In addition, legal literature also notes that the automatic rent increase clause is
the result of bearing the risk of change in rent levels based on the predictions of the
rental agency companies when drawing the contract; thus, the onus should be on the
agency companies to recant their own predictions when circumstances change. This
argument forms another reason for criticism of the Supreme Court’s decision.
Moreover, the Supreme Court cited a large number of elements not clearly included
in Art.32 in deciding the case. The necessity of considering many elements implies
that the standards to solve disputes of this kind are not clear, especially for the lower
courts.
As seen above, many critiques have been leveled against the Supreme Court’s
decision. Nevertheless, the Supreme Court still maintains that Art.32 of the Land
and House Lease Law is a mandatory statute, even in similar cases after 2003.
11.2.2 Claims Against Country Club Management Companies

for the Return of Deposits
11.2.2.1 Background
During the boom phase of the bubble, country club memberships became objects of
speculation because of the rapid increase in membership prices. The burst of the bub-
ble changed that situation, and speculators who bought membership rights with the
objective of making a resale profit faced a sudden drop in prices. Unable to profit from
resale, they requested the return of the deposits securing their membership rights.
Deposits are paid to the country club owning company (managing company) by
new members upon purchasing a membership, and after a period of deferment (usu-
ally 10 years); a member who quits the club can request the return of the deposit.
Many members—particularly those who bought memberships for speculation—
requested the return of deposits after the bubble burst. However, country clubs typi-
cally use almost all deposit funds to acquire land for golf courses and equipment
maintenance, and in reality the management never expects to return deposits.
5
Several other similar decisions rejected the applicability of the clauses by means of the doctrine
of change of circumstances: the decision of the Tokyo District Court, June 13, 1996; the decision
of the Tokyo Court of Appeal, September 29, 1998; and the decision of the Tokyo Court of Appeal,
December 25, 1998, etc.
Faced with the possibility of a deluge of requests for return of deposits, the man-
agement of these companies claimed the various clauses shown below to deny such
requests. Many lawsuits were filed since 1996 (10 years after the formation of the
Japanese bubble).6
11.2.2.2 Decisions Denying Claims to Return Deposits
Decision of the Tokyo District Court May 28, 1998

[Facts of the case]
X, who is a member of a country club managed by company Y (hereafter Y),
requested that Y return the deposit of JPY 22 million after the 5-year deferment
period. Y rejected X’s request on the basis of a clause in the rules of the club society
stating that “the period of deferment can be extended in case unavoidable matters
occur, such as natural disasters, with the approval of the board of directors (club
members appointed by the managing company).” Y insisted that the economic
disaster following the burst of the bubble was equivalent to a natural disaster. The
primary issue was whether the resolution by the board of directors was enforceable
against X.
[Decision of the Court]―Decision 2–1
“In August 1990, when X became a member of the club, it had not been expected
that members would request the return of deposits after 5 years, because by resell-
ing membership rights more money could be acquired than deposit sums.”
“The burst of the bubble economy was beyond the expectations of X and
Y. Moreover, Y had already spent the deposits on the construction of golf courses,
so Y currently had only 1 % of the deposits. If Y accepted requests from members
such as X, Y would be forced to file for bankruptcy.”
“Extending the deferment period by Y was on account of an unavoidable need to
protect the interests of the club’s management and its existing members’ rights to
play golf in the midst of the unprecedented economic confusion (the bubble burst),
which could not have been foreseen and was not Y’s responsibility; therefore, the
extension satisfies the conditions for application of the clause, implying that the
period of deferment can be extended with the approval of the board of directors in
case of unavoidable circumstances such as natural disasters.”
“Considering the above facts, the extension of the deferment period by Y is valid
on the basis of the rules of the club society and is in effect for X.” Hence, X’s claim
was dismissed.
Decision of the Tokyo District Court September 24, 1998
[Facts of the case]
In December 1987, X became a member of a country club managed by company
Y by paying a deposit of JPY 14.4 million. In October 1997, X withdrew from the
club and requested that the deposit be returned in the coming December.
[Decision of the court]―Decision 2–2
6
More than a hundred decisions can be found in the Japanese database LEX/DB.
200 S. Kitayama
“In the rules of the club society, there exists a clause that in case of unavoidable
matters such as natural disasters, the time and method of returning the deposit can
be changed by the resolution of both the club’s and the company’s board of
directors.”
“The term ‘unavoidable situation’ in the clause cannot be interpreted to exclude
changes in economic conditions; rather, it is natural to interpret the clause to include
cases such as drastic changes in economic conditions that could not have been eas-
ily foreseen when drawing the contract, thereby making it difficult to prepare for the
return of deposits. Therefore, X’s claim that changes in the economic conditions
cannot be considered in applying the clause, cannot be adapted.”
“Y not only decided to extend the deferment period but also took strong mea-
sures against changes in economic circumstances (evident in the fact that a fairly
large number of club members heard Y’s explanation and accepted it).”
“Therefore, X’s claim has no merit because the deferment period is extended for
5 years; thus, the day to return the deposit has not arrived yet.”
Decision of the Tokyo District Court January 13, 1999

[Facts of the case]
X became a club member in April 1987 after paying a membership deposit of
JPY 18 million. After 10 years, X withdrew from the club and requested the return
of the deposit. Y rejected X’s request on the grounds that the deferment period was
extended for 10 years with the approval of the board of directors. The rules of asso-
ciation included a clause that stated that the company could extend the deferment
period in certain years with the approval of the board of directors in such cases (a)
wherein it was necessary to manage the Company smoothly (b) there was a danger
of preventing the profits from the members concerning the club’s management, and
(c) natural disaster, striking change of social circumstances, and occurrence of other
unavoidable matters.
“As for the resolution of this case, first, changes in economic circumstances after
the burst of the bubble cannot be termed ‘a natural disaster’. Second, business man-
agers should expect changes in any economic situation, and club managers did pre-
pare for the same them by extension of the deferment period; thus, a ‘striking change
of social circumstances’ cannot be admitted.”
“At the time of the resolution to extend the deferment period, Y had no other
option, and thus this resolution was not just to defer the time of bankruptcy but also
to plan the measures during the extended period to maintain the club and to address
the problem associated with the return of deposits, including a project to switch to
a new system such as stockowner membership. Therefore, the condition necessary
for the company’s smooth management is thought to be satisfied. …As a conclu-
sion, the resolution concerned here is valid.”
Several decisions were assumed as valid to extend the deferment period. It is
assumed that in all three decisions (especially in Decision 2–3), current club
members’ rights were considered more important than the rights of speculators.
However, in terms of case law as a whole, the resolutions were seen as invalid
and requests for the return of deposits were admitted in the courts, as will be seen
below.
11.2.2.3 Decisions Affirming Claims to Return Deposits
Decision of the Tokyo District Court July 27, 1998

“It is clear that in the original rules of the association, a clause noted that ‘the
deferment period can be extended by means of a resolution of the company’s
board of directors, along with the approval of the members’ board of directors in
such cases as the occurrence of natural disasters, force majeure events, and other
unavoidable events for the management of the company.’ However, the require-
ment for both a resolution of the company’s board of directors and the approval of
the members’ board of directors means that Y’s unilateral will would be enough
for Y (the obligee of the deposit money) to escape from its own obligation. …The
extension clause cannot be deemed as an effective standard agreement between X
and Y.” Moreover, “the fact that Y is asked to return the deposits is a fundamental
legal principle in origin, which can be realized—even without the burst of the
bubble economy and Y’s false expectations—because of the decreased number of
golfers and other similar changes in social circumstances. …Since modern eco-
nomic conditions are changing rapidly, there is no room to accept the claim for the
application of the doctrine of change of circumstances when the company betrays
its expectation that the price of a country club membership will always stay above
the sum of its deposit. It is clear that neither the occurrence of a natural disaster
and other force majeure events nor the unavoidable events for the company’s man-
agement is proved.”
Decision of the Osaka Court of Appeal February 18, 1999
“Because club members’ rules determine the rights and duties of Y as well as
other club members who are admitted to enter the society and because the extension
of the deferment period is an unprofitable change of the member’s right, the effect
of extending the deferment period cannot be imposed on a member who does not
individually accept it (see the Supreme Court’s decision, September 11, 1986, Case
Law Times, No. 623, p.74).”
In addition, “although the rules of the society provide that ‘in case of natural
disasters and other occurrences of matters of the force majeure,’ extension of the
deferment period can be done by the board of directors. The facts that Y insist upon
are the reasons for Y’s managerial problems because of the extreme change in eco-
nomic circumstances, including the burst of the bubble, which does not satisfy the
condition above.”
202 S. Kitayama
Decision of the Tokyo Court of Appeal May 26, 1999

“The change in economic situation is—even if Y did not expect it—not unfore-
seeable and is a contingency that business managers should always take into consid-
eration. A deposit’s return request is a member’s fundamental right after the
deferment period, which is consistent with the principle of good faith; therefore, it
is impossible to find any circumstance that will comprise the application of the doc-
trine of change of circumstances as well as exclude X’s claim.”
“A deposit return claim comprises major components of country club member-
ship including the right to play on its course, and it is, in spite of the existence of a
precondition to withdraw from the club, fundamentally a claim that is same as other
monetary claims. When a company falls into excessive debt or insolvency, it can
modify its debt without individual consent of the obligor and avoid bankruptcy if it
can get the agreement of majority of the obligors along with approval by the court
according to the legal procedures. In such procedures, managers must agree to the
supervision and findings of the court, and in certain cases can be pursued to fulfill
their financial responsibilities, but only by such compensation can a decrease in
debt be justified. Modifying the claim of obligors, without using such procedures or
consent of obligors, by way of the resolution of the members’ board of directors
(under the influence of the owner or managing company) cannot be permitted in
principle.”
Decision of the Tokyo District Court July 28, 1999

“Y insists that the revision of the contract should be admitted on the basis of the
doctrine of change of circumstances, and that the deferment period should be
extended by a resolution. For the application of the doctrine, it is necessary that the
following conditions be fulfilled: (a) the circumstances forming the basis for draw-
ing the concerned contract have changed (b) the change in the circumstances was
not and could not have been foreseen by the parties (c) such a change has not
occurred through the fault of either parties’ action, and (d) as the result of the
changed circumstances, binding the parties to the original contract is a clear viola-
tion of the principle of good faith. On the other hand, Y’s claim can be summarized
by considering these aspects. Y’s managerial situation is made difficult by the unex-
pectedly numerous requests for return of deposits after the change in economic
conditions. However, the requests to return the deposits after the deferment period
were foreseeable and were a members’ right; hence, Y should have anticipated them
when drawing membership agreements. Moreover, changes in economic circum-
stances such as the burst of the bubble are, while not foreseen by Y, a possibility that
should have been considered by business managers as a matter of course and not an
extreme change of circumstance. As the result, extension of the deferment period of
the deposit in this case on the basis of the doctrine of change of circumstances can-
not be validated.”
11.2.2.4 Evaluation of the Decisions
Three parties are interested in the return of the deposit: first, former members who
request the return of their deposits. Second, the managing companies that wish to
continue their businesses. Third, the present members who want to enjoy golf at the
club. Since the parties of the lawsuit are always former members and companies,
protecting the rights of the present members is a difficult issue. Through resolutions
of the members’ board of directors, they can claim their rights to a certain degree.
In negotiation and renegotiation outside court, it is especially important to take into
account the costs and benefits of involving a non-party in the original suit in the
court.
As for the case law in this dispute, rediscovery of the decision of the Supreme
Court in 1986 was decisive (see Decision 2–5). Although a membership agreement
between a newcomer and the company has the nature of being both an individual
contract and a corrective contract, the Supreme Court highlighted the former. Of
course, there are two types of managing companies; those with a conscience and
those with speculative expectations. Relatively recent companies (especially during
the boom phase of the bubble) aim to accumulate money through deposits from new
customers. To exclude self-protection by such companies, the individualistic theory
of the Supreme Court’s 1986 decision would be useful. On the other hand, compa-
nies with a conscience could save themselves by recognizing efforts at renegotia-
tion, an element that can be seen as the boards’ approval to extend the deferment
period (see Decision 2–2).
11.3 Some Inquiry into the Financial Crises and the Binding
Force of Contracts
Does Japanese Law Account for the Effects of Financial Crises on Contracts
or Does It Strictly Adhere to the Principle of Pacta Sunt Servanda? In the
sub-lease cases, Decision 1–1 discourages easy judicial intervention in contracts
and admits to the enforceability of the automatic price increase clause, which
seems to be a rather rare case. In other cases, the courts try to moderate the par-
ties’ costs and profits through certain types of legal reasoning (see Decisions 1–2,
1–3, and 1–5).
In the country club deposit cases, Decision 2–1 states that natural disasters and
the burst of the bubble economy are the same type of problem. This would be an
exceptional decision. Decisions 2–3, 2–4, and 2–5 clearly distinguish these two
abnormal situations. More importantly, Decisions 2–6 and 2–7 deny the defendant’s
claims that changes in economic circumstances allow them to renege on their obli-
gations. These decisions argued that changes in economic conditions were foresee-
able and business managers undertook an economic risk.
204 S. Kitayama
In addition, from the experience of the rather short-term bubble economy in

Japan, the time frame when the contract was drawn is considered an important ele-
ment. As per Decision 1–5, the court denied the validity of the clause for the auto-
matic increase in rent due to the reason for impossibility of predicting the bubble
burst in 1989 (1 year before the burst). On the other hand, as per Decision 1–4, the
doctrine of change of circumstance could not be applied because the sub-lease proj-
ect was started in 1991 (almost just the beginning of the bubble burst year). The
difference in these two decisions is closely related to the fact that predictability of
the burst increased as the bubble economy reached its peak.
What Is the Theoretical Basis for the Acceptance of the Effects of Financial
Crises in Japanese Courts? As seen in the sub-lease cases and the country club
deposit cases, Japanese courts solve this problem through complementary interpre-
tation of the contract based on letters on paper as well as by examining the hypo-
thetical intentions of the parties. However, in cases when the problem cannot be
focused on the parties’ will, the doctrine of change of circumstances is invoked. The
limit of the possible interpretation of parties’ intentions is well described in Decision
1–5.
In Japan, the doctrine of change of circumstances is considered a last resort.
Claiming the right and determining the parties’ claims without using this doctrine is
a common practice among Japanese lawyers.
According to Japanese Law What Are the Conditions for Accepting an

Exceptional Fact? In the sub-lease cases, as was properly highlighted by Decision
1–3, the necessity of revising the parties’ proportionality in profit and loss sharing
was triggered by the courts’ motive to intervene in contracts. The unforeseeability
of the exceptional situation was likely regarded as being very important, because
Art.32 of the Land and House Lease Law in Japan does not require the change in
circumstances to be unforeseeable for the contract to be revised.
However, in the country club deposit cases, as can be seen in the Decisions 2–6
and 2–7, the unpredictability of present circumstances at the time of drawing the
contracts was a strict requirement for the release from company obligation. There
are two reasons for this. First, for a long time, courts have had a tendency not to
recognize the unpredictability of exceptional circumstances when applying the doc-
trine of change of circumstances; therefore, this pattern may continue to be held in
cases involving financial crises. Second, and more importantly, Japanese companies
were immersed in ‘irrational exuberance’ during the boom of the bubble economy;
therefore, Japanese judges may have looked back on past activities of concerned
companies without any interest. Perhaps the nature of the financial crises in each
country would influence its courts’ tendencies.
Comparing the sub-lease cases and the country club deposit cases, the signifi-
cance of damage to the companies was not weighed as heavily in the latter cases. In
the former, the bankruptcy of either the lessor or lessee seemed to have been deemed
unacceptable by judges. In the latter, as per Decision 2–6, bankruptcy was deemed
a possible option. The size of the business and its impact on the larger economy
were important factors affecting these decisions.
What Would Be the Legal Consequence of Such a Case Under Japanese

Law? In the sub-lease cases, no decision admitted the termination of the contract.
All the legal consequences involved revision of the contracts based on both the
automatic rent increase clause and Art.32 of the Land and House Lease Law. In real-
ity, the lessee (administrative company) would have been eager to terminate the
contract, but no case was published in which the lessee demanded termination in the
court.
In the golf club deposit cases, the issue has been whether the resolutions of the
managing companies’ boards of directors (or members’ associations) were valid.
Thus, the legal consequences were limited to revision of the contracts (extension of
the deferment period) as a matter of course.
In Japan’s legal literature, the effect of the doctrine of change of circumstances
is now being actively argued. The relative priorities of revision and termination
(rescission) and the legal nature of the duty to renegotiate are the central themes of
this discussion. Although these problems seldom appear in case laws in Japan, the
type of the contract argued would be an important determining factor (e.g., sales or
lease contract, and discrete or successive contract).
11.4 Supplementary Consideration: The Social Dimension

of Pacta sunt Servanda in Japan
As previously mentioned, the doctrine of change of circumstances, which creates

the exception to the principle of pacta sunt servanda, is rarely admitted. This does
not necessarily mean, however, that contracts and transactions in Japan are strictly
governed by the principle of pacta sunt servanda.
In Japan, the official revision of the Civil Code (concerned with the law of obli-
gation) is now in progress and is scheduled for completion in 2016. In the revision,
the doctrine of change of circumstances was originally had planned to be stipulated
in the text. During the revision process, public comments on all planned revisions
were formally requested of many laypersons, professionals, companies, law firms,
and lawyers’ associations. The majority of the comments opposed codification of
the doctrine of change of circumstances. Hence, it was finally decided that the doc-
trine would not be codified in the Civil Code. The major reasons for public opposi-
tion to the codification of the doctrine were the following: (a) codification of the
doctrine in the Civil Code would invite abuse for the purpose of escaping original
legal obligations; (b) the doctrine could become a weapon for the stronger party to
force their demands on the weaker party; (c) the obligation to renegotiate would be
used by one party to buy time during the conflict; (d) the basis of the doctrine, i.e.,
the good faith principle, is sufficient for addressing the problem of changed circum-
206 S. Kitayama
stances. Hence, no need exists to codify minute requisites and effects such as the
doctrine of change of circumstances. (e) interpretation of contracts based on the
good faith principle would be both sufficient and preferable for solving individual
and characteristic disputes flexibly; and (f) revision of contracts by the court repre-
sents excessive interference in light of the principle of private autonomy.
What Can Be Seen from These Reasons Against the Codification of the
Doctrine? Japanese business persons and companies do not place a high value on
the enforcement of the original contracts and do renegotiate outside the courts in
cases of change of circumstances to revise the original contracts. Thus, they feel no
inconvenience by resolving disputes in this manner. A thorough interpretation of the
negative comments above suggests that de facto renegotiations reflect the power
balance between the parties as effectively as the letters and clauses of original con-
tracts. The standards for resolving such issues are not the predictability of the
changes or the seriousness of economic damages, but ad hoc considerations of the
varied facts and intentions of the parties in each case. Accordingly, parties who
make concessions in de facto renegotiations prefer to avoid the revaluation of their
conclusions by the courts.
If this idea is correct, the ideal legal principle for exceptions to the enforceability
of the original contracts should be constructed not by the interpretation of the risk
allocation in the original contract nor the unpredictability of the future change of
circumstances, but by the identification and recognition of a range of de facto
standards in order to promote fair and equitable renegotiations free from the arbi-
trary demands of stronger parties.
Chapter 12
The Effects of Crises on the Binding Force
of Contracts: Polish Solutions
Wojciech Robaczyński
Abstract Pacta sunt servanda principle is a basis of the law of obligations, assur-
ing the necessary stability of legal relationships. This principle is declared by the
Polish civil code in Article 354. This provision sets a frame of the manner in which
an obligation is to be carried out. Due to the fact that Polish economy resisted the
negative economic phenomena to a great extent there was no need to narrow this
principle. Sufficient enough turned out to be an original solution that we can find in
the Polish civil code. This solution was to be Art. 3571 of the civil code. The provi-
sion reads as follows: “If, due to extraordinary change in relationship concerning
fulfilling the obligation, it would be connected with undue hardship or one party
would be at a risk of a gross loss and which was not foreseen by the parties while
concluding a contract, court may, having considered the interests of both parties and
in accordance with social coexistence, decide on the manner of performing the duty,
the amount of compensation or even decide on terminating the contract.”
12.1 One of the issues that have permanently been a subject of a lively discussion
in the science of civil law is the scope of rules of pacta sunt servanda principle. This
principle is a basis of the law of obligations, assuring the necessary stability of legal
relationships. Therefore, it comes as no surprise that contemporary legal system
formulate it in one form or another. Pacta sunt servanda principle is also declared
by the Polish civil code in Article 354. This provision sets a frame of the manner in
which an obligation is to be carried out, placing in the foreground the requirement
to perform that duty in accordance with the provision. Thus, it is the content of the
This article is also published in the book “Rapports polonais – XIXe Congrès international de droit
comparé” edited by Biruta Lewaszkiewicz-Petrykowska, and published by Łódź, Wydawnictwo
Uniwersytetu Łódzkiego upon whose approval was updated later by the author.
W. Robaczyński (*)
Faculty of Law and Administration, University of Łódź, Łódź, Poland
e-mail: wrobaczynski@wpia.uni.lodz.pl

208 W. Robaczyński
contract that determines the manner in which the contractual obligation is to be car-
ried out, even though in the light of Article 354 § 1 of civil code, the following are
also of importance: socio – economic objective of the obligation, principles of
social coexistence and the established customs. These non-contractual criteria are
only of ancillary character – it is the content of the contract that is of primary
importance.
The positive aspects of pacta sunt servanda principle are most visible when the
obligations are carried out under stable economic conditions. Thanks to real perfor-
mance of contractual obligations, in a manner that remains in accordance with the
originally accepted duties, certainty of behaviour is achieved, which is a value not
to be overestimated. However, there appear situations in which – without negotiat-
ing the meaning of pacta sunt servanda principle – attempts are undertaken to find
solutions aiming at mitigating the blade of the above mentioned principle.
Discussions concerning this issue usually arise in cases of exceptional, unforeseen
changes in circumstances accompanying performance of the contract.1
The impact of changes in the circumstances on the contract should be among the
classic issues of civil law. Literature concerning this subject, both Polish and world-
wide, is really extensive.2 For obvious reasons, the interest in the possibility to mod-
ify the contractual relationship bond increases in the periods of special phenomena
occurrence, which are rooted in imbalance of the contract originally concluded by
the parties. If, however, in the past, the discussions on this subject were connected
primarily with natural catastrophes, nowadays attention is drawn mainly towards
phenomena of economic character. The global economic crisis contributed to such
a state of things in the first instance, through plaguing the economies of individual
countries and also a significant part of the worldwide economic system for several
years.
The situation of Poland to the other European countries is a specific one, for
reasons that are both economic and concerning the applied legal solutions. A sig-
nificant economic circumstance is a fact that Polish economy resisted the negative
economic phenomena to a great extent. The reasons for this are various, but we will
not look into the crisis in its economic aspect. From the point of view that is of inter-
est to us, a more significant is an original solution that we can find in the Polish civil
code.
12.2 As is commonly known, Poland of the nineteenth century did not have its own
statehood and the land was divided between Prussia, Austria-Hungary and Russia.
Due to that fact, a foreign law was in force at that time, depending on who occupied
the land. Additionally, on parts of the lands occupied by Russia (the so-called Polish
Kingdom), French law was in force, which was a remnant of the Napoleonic era. As
a result, Polish lands were under the influence of several jurisdictions, which later,
after gaining independence in 1919, became models for a unified legal system in
Poland. Among the systems that were of particular influence on the Polish
1
Rajski (2010); Lackoroński (2012), No 3.
2
See. e.g. Brzozowski (1992).
12 The Effects of Crises on the Binding Force of Contracts: Polish Solutions 209
jurisdiction, were German and French laws. BürgerlichesGesetzbuch civil law (the
German civil code) and Code Napoleon (the French civil code), were the points of
reference while creating Polish legal regulations. Particularly, the code of obliga-
tions of 1933 is seen as a result of these works, which became an example of the
civil code that was created in 1964.
It is necessary to point out here that when it comes to the problem of this analy-
sis, the Polish law took a different way to the already mentioned European legisla-
tions. If in the above mentioned codes, pacta sunt servanda rule was a rule that was
rigorously followed, a solution was introduced into the code of obligations (Art.
269) that allowed a modification of a contractual relationship on the grounds of a
court’s ruling in case of – as it was then versed – an extraordinary event. This was
truly an innovative solution that adapted into the Polish legal order the idea of rebus
sic stantibus clause. This solution was characterised by originality and that feature
remains valid until today. Originally, an equivalent of Art. 269 of the obligation
code was not introduced into the Polish civil code that was based on the western
examples, even though it was enacted right in the middle of the communist era. It
was found that in case of economy that was centrally planned and detached from the
market rules, there is no room for unforeseen circumstances. As it appeared, how-
ever, due to the permanent crisis of the then existing economic model, it is necessary
to restore a solution allowing the legal system to react in situations that are unex-
pected and violating the principles of contractual balance. This solution was to be
Art. 3571 of the civil code that was introduced in 1990 as a course of the amend-
ment.3 The provision reads as follows: “If, due to extraordinary change in relation-
ship concerning fulfilling the obligation, it would be connected with undue hardship
or one party would be at a risk of a gross loss and which was not foreseen by the
parties while concluding a contract, court may, having considered the interests of
both parties and in accordance with social coexistence, decide on the manner of
performing the duty, the amount of compensation or even decide on terminating the
contract. By terminating the contract court may also, if needed, decide on settlement
of the parties, considering the principles set out in the preceding sentence”. It is
worth noting that initially, between 1990 and 1996, there was also another provision
(§ 2), which excluded the possibility of an entrepreneur referring to Art.3571 of civil
code if a settlement should remain in connection with managing his enterprise. This
restriction was lifted, however, under criticism formulated in the legal literature.4
In the initial period of the restored solution, it was applied primarily in cases of
events that had a character of natural disasters. A rather sceptical approach was
given both in the literature and jurisdiction, to the possibility of applying this provi-
sion in case of economic changes. Soon it appeared, however, that the changes in
social, political and economic system resulting from the fall of communism, became
“the extraordinary change of relationships” in themselves, as stipulated by Art. 3571
3
See Robaczyński (1991), No 11–12.
4
See Brzozowski (2009), p. 180.
210 W. Robaczyński
of civil code. The jurisdiction of the Polish Supreme Court in this area is rather
extensive.5
Together with economic stability, the meaning of rebus sic stantibus clause
began to weaken. It was only the abovementioned world economic crisis resulting
in serious changes in the power of Polish currency following the fall of the Lehman
Brothers bank in 2008 that became the impulse to resume a lively discussion con-
cerning this issue.
12.3 Thus, the Polish law constructed its own model of the legal system’s reaction
in the face of a fundamental change of circumstances. In order to make a certain
simplification in considerations, usually a reference is made to adapt rebus sic stan-
dibus clause in Article 3571 of civil code. It seems, however, that this provision
cannot be interpreted as a contractual clause nowadays. In terms of Polish law, the
discussed solution does not constitute a contractual clause in its traditional under-
standing. Neither does it seem possible to talk about a clause that is simply tacitly
accepted by entities concluding contracts in case of a change in circumstances. A
solution included in Article 3571 of civil code should thus be understood not as a
contractual clause, but as exceptional statutory authorisation for court to intervene
in the content of the contractual relationship that ties the parties. So as to maintain
a certain tradition, it is allowed to use the term rebus sic stantibus as it is deeply
rooted in the science of law.
As is well-known, in various legal orders, there evolved several fundamental
theories that justify a revision of a contractual relationship in case of a change in
circumstances. The following are of particular importance: a German concept
“Wegfall der Geschäftsgrudlage”, French “theorie de l’imprévision”, or the one
formed on the basis of common law “frustration of contract”. One should also not
forget about the tendency to broadening the interpretation of the notion of inability
to provide, which aims at constructing a concept of the so-called economic inability
(wirtschaftlicheUnmöglichkeit).
The need to find appropriate solutions both in the science of law and in judica-
ture, is justified by the lack of appropriate statutory construction. Whereas in Poland,
due to the applicability of Article 3571 of civil code as an exceptional statutory
authorisation, there is no need to construct other theoretical justifications of the
change in circumstances on the contract. Thus, Polish regulation constitutes a spe-
cific solution that is best fitting the needs of Polish economic turnover. This expresses
the realisation of the rebus sic stantibus concept, even though due to the aforemen-
tioned reasons, I would opt for a cautious use of the traditional understanding of the
rebus sic stantibus concept. It needs to be emphasised, however, that applicability of
Article 3571 of civil code does not undermine the principle of pacta sunt servanda
as the main regulation of performing obligations. It may be also said that the pos-
sibility of modifying obligations on the basis of Article 3571 of civil code is rather
5
See e.g. Supreme Court, Dec. 2, 1998, I CKN 972/97; Apr. 22, 2005, III CK 594/04.
a supplement to the statutory rules of performing contracts than a contradiction to

the principle of pacta sunt servanda.6
12.4 Let us now analyse Article 3571 of civil code, which will allow us to evaluate
the meaning of the solution it includes from the point of view of legal system needs
to react to the crisis phenomena. Obviously, listing the conditions of applications
from Art. 3571 of civil code is of primary interest here. These conditions could be
defined as follows:
(a) Obligation results from the contract

(b) Extraordinary change of relationship between concluding the contract and performing it
(c) Violating the balance of the contract, i.e. excessive difficulty in meeting the provisions
of the contract or a threat of gross loss
(d) Unpredictability of the influence of a change of relationship on the obligation
Annotation (a) Applying Art. 3571 of civil code is only possible with reference to those
obligations that result from the contract. Not only the stipulations of the provision support
this viewpoint, but also the clause rebus sic stantibus, the concept of which was shaped on
the basis of contracts. In Polish law, the Supreme Court attempted to apply this construction
to the non-contractual obligations.7 However, it was greeted with criticism in the legal lit-
erature, following which the Supreme Court waived this view.8
In the light of Article 3571 of civil code, it does not in fact matter who is a party
of the contract. Hypothetically, a court’s interference in the contractual relationship
may concern contracts concluded by all entities. In practice, however, in case of
contracts concluded by professionals, with consumers in particular, court will be
more rigorous when evaluating the other conditions, even more so since the dis-
cussed provision orders to include the rules of social coexistence.
Annotation (b) The basic premise of Article 3571 of civil code is extraordinary change of
relationship. The notion “extraordinary change of relationship” requires defining what “a
change of relationship” is and under what circumstances it may be classified as
extraordinary.
It is often emphasised in the literature that a change of relationship means a

change of external conditions under which a contract is performed. These are not
conditions concerning a specific part of a contract, e.g. illness, bankruptcy, factory
fire. These are circumstances concerning the entire class of subjects or a significant
area.9 These changes are based on re-evaluation of the currently existing obligations
6
See Robaczyński (1998), pp. 68–70.
7
Supreme Court, Nov. 26, 1992, III CZP 144/92.
8
See e.g. Jaworski (1998), No 9, p. 35.
9
See Robaczyński (1998), pp. 92–93; Machnikowski (2013), pp. 562–563. Different opinion:
Bieniak M (2009a) Extraordinarychange of relationships as an conditio to applyArticle 3571 of
civil code – an attempt to define (Nadzwyczajna zmiana stosunków jako przesłanka zastosowania
art. 3571 k.c. – próba definicji), Studia Prawnicze No 4, pp. 82–83. See also Bieniak M (2009b)
Rebus sic stantibus clause – possibilities of its current use (remarks in the light of Article 3571 of
civil code (Klauzula rebus sic stantibus – możliwości jej aktualnego zastosowania [uwagi na tle art.
3571 k.c.]), Monitor Prawniczy, No 12, p. 641. See also Appeal Court of Warszawa, Apr 25, 2014,
I ACa 1502/13.
212 W. Robaczyński
and functioning of the contract in a completely new light. It is not suffice to claim
the change of relationship, however. This change is to be of extraordinary character.
In the literature and jurisdiction it is emphasised that the term “extraordinary”
means not frequent, unusual and exceptional. Thus, it is only when we qualify the
change of relationship as extraordinary, may we consider any further conditions of
the rebus sic stantibus clause. These could be circumstances of various character.
Obviously, the fore changes would be those connected with catastrophic natural
changes: earthquakes, hurricanes, tsunami, floods, disastrous droughts. Also signifi-
cant disruptions of social life cannot be ruled out, such as wars, riots, strikes, blocks
of all kinds, terrorist attacks, etc. It needs to be stressed, and that was mentioned
earlier, that an extraordinary change of relationship may also mean perturbations of
economic nature, connected with crisis phenomena in particular. See Appeal Court
of Katowice, Mar 6, 2015, I ACa 564/14; Appeal Court of Wrocław, Jan. 24, 2013,
I ACa 1362; Appeal Court of Katowice, Mar 6, 2015, I ACa 564/14. In many cases,
circumstances treated as extraordinary may also be – from a different perspective –
seen as force majeure (vis maior). Even though these circumstances may be related
or even identical, their function remains different. If rebus sic stantibus clause
enables the modification or termination of a contractual bond by court, force majeure
is a circumstance that releases the debtor from responsibilities in case of improper
or insufficient performance of their obligations.10
Annotation (c) Violating the balance of the contract is a result of an extraordinary change
of relationship. We assume that in case of each contract a consensus between the parties is
reached. Thus, the contract is a result of a compromise, an understanding of divergent inter-
ests between the parties. The contract is also a result of a cooperation.11 An extraordinary
change of circumstances results in violating the balance. As a result, a court’s interference
is made possible, so as to achieve the balance of the contract.
The above mentioned violation of balance may take the form of an excessive dif-
ficulty in performing the obligations or a threat of a gross loss. An excessive diffi-
culty applies to a debtor who may be in a position to perform his duty, but these
would require such efforts that no prudent participant may demand in such a situa-
tion. These particularly include technical, organisational or logistics difficulties, but
also these of economic nature (the necessity to gather disproportionate funding).
Whereas the threat of a gross loss is connected solely with the effects of an eco-
nomic nature. This may affect any of the parties. In case of a significant change of
circumstances, it may appear that one or the other party may have to engage in ful-
filling the obligation such funding, goods or services that in relation to the value of
the other party’s services, the balance of performing the contract proves negative
and to such an extent that the term “gross loss” applies for that particular party.
Obviously, the term “gross loss” is of an evaluative character and in every case
court must assess individually whether this loss would be of such a character. It
should be remembered, however, that not in each case a loss may mean the necessity
to intervene in the content of contractual bond. It needs to be remembered that intro-
10
Bagińska (2010), p. 182.
11
Robaczyński (1998), pp. 77–80.
ducing a mechanism correcting the content of a contract should take place – due to
the necessity to maintain the certainty of behaviour–exclusively in cases where the
scale of effect of relationship on the obligation is of such a kind that it exceeds the
so-called normal contractual risk. See Appeal Court of Lublin, Jul 31, 2013, I ACa
239/13; Appeal Court of Warszawa Apr 25, 2014, I ACa 1502/13. See also Supreme
Court, Nov. 19, 2014, II CSK 191/14. The term of normal contractual risk is not
used in the Act, it is a concept elaborated in the science of law and legislation. It
means that every honest contractor should be aware of certain changeability of exte-
rior conditions and the possibility of the economic value of a transaction being
influenced by it. Such phenomena as fluctuations, variability in demand and supply,
floating exchange rate, etc. are normal phenomena that have always accompanied
the economic life. The contracting party must be aware of these phenomena and
cannot in every case demand the revision of contractual provisions. This would
place turnover at undesired destabilisation of turnover. It is only when the scale of
the above mentioned phenomena reaches such intensity that the sense of the origi-
nally concluded contract becomes questionable, one may consider applying Article1
of civil code, obviously only when all other provisions stipulated in it have been
fulfilled. A similar approach is applied when referring to Article 3581 § 3 of civil
code, which provides for judicial indexation of cash benefits (there will be more on
indexation in this work).
Annotation (d) In order to apply rebus sic stantibus clause, it is necessary for the change
of relationship between the parties to be unpredictable. It needs to be stressed that – despite
certain doubts that one may have reading the content of the provision literally – there is an
agreement concerning the fact that it refers to an objective lack of possibility to foresee the
influence of changes in circumstances on the obligation and not to a lack of subjective
anticipation of this fact by the parties.12
While constructing this condition, the legislator is of the opinion that if there is a
possibility to foresee the influence of changes on the circumstances, then the parties
may include this risk in their contract, thus eliminating in advance the negative
influence on the economic sense of the contract. Clearly, it may happen that the par-
ties may have foreseen the outcome of certain events, however it was not possible to
have foreseen that the actual outcome will be even more far-reaching. In such cases,
applying Article 3571 of civil code will not be excluded – so it seems – it will be
possible to apply it in part that places it out of any predictability.
12.5 Fulfilling the conditions of Article 3571 of civil code creates a possibility for
the interested party to apply to court for an appropriate demand to modify the con-
tractual relationship. Polish legislator does not require the submitted request to be
preceded by an attempt to renegotiate the contract. Obviously, the parties may reach
agreement at any time and change the provisions of the contract (except for the
cases that are non-negotiable and concern public procurement). In such cases, it is
12
See Machnikowski (2013), p. 565; Bieniak (2009b) Rebus sic stantibus clause, pp. 640–64. See
also Supreme Court, Sep 21, 2011, I CSK 727/10; Appeal Court of Rzeszów, Mar 28, 2013, I ACa
452/12.
214 W. Robaczyński
the contractors themselves who establish how the balance of their contract is to be
restored. If, however, for any reason, reaching an agreement in this matter proves
impossible, then the possibility of applying to court opens up.
The legislator does not impose too strict rigors of modification of the contractual
relationship. Modification criteria are stipulated very generally, which provides the
flexibility desired in extraordinary circumstances. As can be seen from the above
quoted content of Article 3571 of civil code, court is to consider the interests of par-
ties (both parties) and be guided by the principles of social life. In the Polish law,
the social life principles function as certain extralegal measures to assess social
behaviour and an indicator of a manner in which an obligation is fulfilled, similarly
to, e.g. the principle of good faith and trust on the basis of German civil code
(“TreuundGlauben” – § 242 BGB). The necessity to consider the interests of both
parties is obvious as it is impossible to allow a situation in which the whole burden
of unfavourable phenomena that constitute an extraordinary change of a relation-
ship would be borne by just one party.
In order to restore the affected balance of the contract, court may – first of all –
change the amount of a settlement or the manner in which it is to be performed (for
instance the time limit). As a final solution, a possibility to terminate the contract is
provided (in the provision there is a term that court may “even decide to terminate
the contract”). In case of terminating the contract, it may be necessary to also decide
on settlements between the parties, especially in cases when the settlement has
partly been carried through. While determining the settlements, court is also to con-
sider the interests of both parties, guided by the principles of social coexistence.
12.6 The conditions presented above as for the application of Article 3571 of civil
code may justify the application of rebus sic stantibus clause also in the face of
phenomena of economic character.13 Assuming that in a given situation we are deal-
ing with ‘abnormal’ crisis situations rather than with ‘normal’ fluctuations of a mar-
ket situation, it could be concluded that an extraordinary change of relationships in
the understanding of the discussed provision is taking place.14 It is worth emphasis-
ing, that this extraordinary change should be expressed in phenomena of deeper
nature than just a change – even a serious one – of currency exchange rates. Just a
change in the value of money itself, if relevant, justifies the use of the so-called
court indexation on the basis of Article 3581 § 3 of civil code, which will be dis-
cussed later on, than the clause rebus sic stantibus.15 If, however, the crisis phenom-
ena mean a fundamental market change that are additionally connected with, for
instance, a wave of bankruptcies of many companies, due to which a market col-
lapse takes place, then we may assume the extraordinary change of relationships is
arising. Such phenomena may be compared to a crisis that Poland was experiencing
by the end of the communist era in the 80s of the twentieth century. As was men-
13
See Brzozowski A (2009), pp. 980–982; Bagińska (2010), p. 181; Strugała (2010) No 8, pp. 47
and following.
14
See e.g. Appeal Court of Wrocław, Jan. 24, 2013, I ACa 1362/12.
15
Supreme Court, Feb. 25, 2004, II CK 493/02.
tioned earlier, Polish judicial system was inclined to accept such phenomena as an
extraordinary change of circumstances. Such a change may influence the contract,
leading to violating its balance.16 We could say that violating the contractual balance
stands out as the first met condition of Article 3571 of civil code that leads to search-
ing for answers to a question whether this violation resulted from the change of
circumstances that was of extraordinary character.
It should be added here that the Polish judicial system accepts also changes in the
legal system, including those concerning taxes, as the extraordinary change in rela-
tionships as stipulated by Article 3571 of civil code. Serious changes, e.g. in VAT
rates, may significantly undermine the economic sense of an obligation.17
However, it should not be forgotten here that applying the mechanism of rebus
sic stantibus requires determining the unpredictability of the influence of the change
in relationships on the obligation. If certain economic phenomena can be predicted
and their influence on the contractual relationship is also to be predicted, court will
refuse its intervention into the content of the obligation. Expecting the occurrence
of certain economic phenomena, the parties may calculate the risk connected with
that fact in the provisions of the concluded contract, appropriately spreading the
contract risk.18 Applying Article 3571 of civil code is not then justified. Assuming
otherwise could lead to undermining all contracts concluded during the times of
occurrence of crisis phenomena, which would also lead to extending the market
chaos. The above mentioned question of unpredictability is crucial in practice.
Taking it into account undermined the possibility of applying Article 3571 of civil
code in the so-called option contracts that were concluded prior to the market col-
lapse in the year 2007. It could be said that these contracts were concluded by
enterprises with the banks precisely in order to be able to respond flexibly to the
changes in exchange rates in crisis situations. Thus it is hard to justify appointing
the extraordinary change of circumstances in relation to these contracts, if the pos-
sibility to change a relationship was an assumed in advance reason for which such
a contract was concluded in the first place.
12.7 It is worth noting that a solution similar to the Polish one was included in the
Principles of European Contract Law (PECL). Although Article 6.111 paragraph 1
of PECL accentuates the meaning of pacta sunt servanda principle, yet in Article
6.111 §§ 2 and 3 there is a possibility to revise the contractual relationship. However,
contrary to the solution accepted in the Polish law, Article 6.111 of PECL requires
the parties to undertake an attempt to change the content of the contract by renego-
tiation. It is only when renegotiations fail that a request to court to terminate the
contract or modify it would be justified. It is possible also that the other party could
claim compensation for damages caused by refusing the other party participation in
16
Morek R (2013), p. 99.
17
Supreme Court, May 16, 2007, III CSK 452/06; Nov. 22, 2007, III CSK 111/07; Jan. 17, 2008,
III CSK 202/07; Nov 19, 2014, II CSK 191/14; Mar 29, 2012, I CSK 333/11; See also Appeal
Court of Warszawa, Jan 17, 2014, VI ACa 307/13.
18
Supreme Court, May 10, 2006, III CK 336/05.
216 W. Robaczyński
renegotiations or by carrying them out in bad faith, i.e. in a manner that remains
contrary to the principles of good faith and honest turnover. It should be expected
that a solution suggested by PECL may reflect in the legal orders of the European
Union members, even more so due to the fact that the worldwide economic crisis
leads to seek such solutions. Contrary to the Polish law, however, this is just a prop-
osition that perhaps will be included in the European Civil Code in future.
On the other hand, current solution, similar to the one accepted in Poland, is
included in Article 1467 of Italian civil code. This provision gives grounds to termi-
nate a contractual relationship in a situation when as a result of exceptional and
unpredictable events, it would become too difficult to perform the contractual obli-
gation (eccessiva onerosita). It is worth noting that Article 1467 paragraph 2 of
Italian civil code rules out the possibility to quote that provision when the event
remains within the frames of risk that the parties should be aware of while conclud-
ing the contract. This provision is also accepted in interpretation of Article 3571 of
civil code, even though it was not stipulated expressis verbis there.19
12.8 Accepting a solution described in Article 3571 of Polish civil code results in
considerations connected with the search of a solution that is of interest to us from
the point of view of the concept of inability to provide, recognised as economic
inability to provide, are currently not undertaken. It needs to be noted, however, that
in the period after the repeal of Article 3571 of civil code, attempts to theoretically
justify using this concept, the influence of the change in relationship on the obliga-
tion were undertaken.
A solution was then proposed, according to which conditions concerning eco-
nomic inability were arranged in a manner analogous to the former Article 269 of
obligation code, that is they corresponded to – in their basic shape – to the condi-
tions of current solution stipulated in Article 3571 of civil code. Certainly, it was
such propositions that allowed to “store” the idea of rebus sic stantibus between
1965 and 1990, which resulted in adopting the currently existing solutions.20
Currently, majority of cases where one could trace back the concept of economic
inability to provide may be resolved on the basis of Article 3571 of civil code. This
does not, however, mean that this concept should be completely rejected. It needs to
be remembered that the theory of inability does not ensure such flexibility as is
expressed by the rebus sic stantibus clause. The result of subsequent inability to
provide is termination of obligations (Article 475 § 1 of civil code) and that leaves
no place for modification of the obligation and adjusting the contractual provisions
to the changed conditions.
12.9 Apart from the rebus sic stantibus clause in its general form, the Polish law
also provides for special cases of court interference into the content of an obligation.
Of particular importance here is Article 632 § 2 of civil code that includes a possi-
bility to increase a flat-rate remuneration in contracts for specific works (also in
19
Robaczyński (1998), p. 39.
20
See Lewaszkiewicz-Petrykowska (1970), pp. 82–83.
contracts for construction works) in a situation when in case of a change of relation-

ships that was impossible to foresee, payment of a flat-rate only would threaten the
contractor with a loss, especially in cases of the necessity to carry out unexpected
additional works.
On the other hand, in case of contracts for public procurement, Polish Act of
January 29, 2004 – Public Procurement Law – provides (Article 145 § 1) that in case
of an unexpected change in circumstances resulting carrying out the contract being
not in public interest, the ordering party (entity that has public funding at their dis-
posal) may withdraw from the contract. In such a case it is not a question of restor-
ing the disturbed balance of a contract. The only solution is terminating the legal
relationship that binds the contractor with the ordering party. It is necessary to point
out, however, that in the light of a dominating opinion, also in cases of public pro-
curement it is possible to apply the mechanism of the rebus sic stantibus clause and
thus applying to court with a request on the basis of Article 3571 of civil code.21
12.10 Polish civil code knows yet another solution that may be applied in a case of
economic situation change that results with a change in currency value.22 It is index-
ation of cash benefits. It may take a twofold character: contractual or judiciary
indexation. It is a rule in the Polish law that cash benefits are accomplished by their
face value. This rule (the so-called nominalism principle) is specified by Article
3581 § 1 of civil code. According to this provision, if a subject of an obligation since
the moment it has been determined, is a given sum of money, accomplishing this
duty should take form of a face amount payment. However, in case of changes in the
currency value after the obligation has been established, the parties may apply a
contractual value by introducing into the contract the so-called indexation clause
which is provided for in Article 3581 § 2 of civil code. According to this provision,
the parties may stipulate in the contract that the amount of cash benefit will be deter-
mined according to another measure of value than money. This stipulation is done
by introducing into the contact the so-called indexation clause. The Act does not
limit the parties in their choice of measure in a given case. Most frequently, it will
be the so-called currency clause that refers to the contract currency relation to other
currencies. It is worth noting here that currently, civil code does not favour Polish
currency as a object of provision. The parties are free to choose. Applying currency
clause in the case when the object of provision is Polish currency may, however,
lead to unreliable results due to the recurring phenomenon of fluctuation that do not
reflect the actual market situation. Another form of security may be the metallic
clause (it refers to primarily to gold), commodity clause (grain, fuel, raw materials,
etc.) or index clause that provides a measure that in this case becomes a variable of
several different base measures.
21
District Court of Białystok, Oct. 25, 2011, VII GC 127/11. See also Robaczyński (2005) No 10;
Machnikowski (2013), p. 561.
22
See Mróz (2000) No 2–3, pp. 7 and following.
218 W. Robaczyński
Applying the index clause depends, however, on a previous decision made by the
parties in this respect. In case the parties do not provide such a contractual mecha-
nism, civil code also provides the so-called court indexation of cash benefit. Article
3581 § 3 of civil code is the basis. This provision reads as follows: “In case of a
significant change in the purchasing power of money after the obligation has been
concluded, court may, having considered the interests of both parties, in accordance
with the principles of social coexistence, change the amount or manner of accom-
plishing the payment, even though they may have been provided for in the contract”.
We should note that in this case – as opposed to the rebus sic stantibus clause from
Article 3571 of civil code – the same code does not require a change of relationship
to take place that would be of extraordinary character. A “significant” change in the
value of money suffices here. The level of relevance of this change remains to be
assessed by court, yet the literature emphasises that in case of court indexation,
similarly to the rebus sic stantibus clause, the mechanism of modification of the
obligation should only be started when the level of change in the purchasing value
of money reaches the limits of the above mentioned usual contract risk.
It should also be noted here that court indexation of a cash benefit cannot take
place at the entrepreneur’s request and not only against a natural person that is also
a consumer, but also against another entrepreneur. Prohibition to quote Article 3581
§ 3 of civil code by the entrepreneur, results from Article 3581 § 4 of civil code. As
a consequence, in economic turnover contractual indexation clauses are of less
value than court indexation.
As can be seen from the above comments, there are certain similarities between
the rebus sic stantibus clause in Article 3571 of civil code and court indexation in
3581 § 3 of civil code. These similarities incline some authors to apply terms such
as “a grand rebus sic stantibus clause” (Article 3581 § 3 of civil code). I am of the
opinion, however, that similarities between these constructions are more of a “tech-
nical” character and they differ on the merits. Only the solution provided in Article
3571 of civil code realizes the rebus sic stantibus idea clause as understood tradi-
tionally, thus leading to a transformation of the already existing contractual obliga-
tion. Court indexation means that it is only a technical operation of an accounting
character, which allows to make the amount of a benefit more real but not leading to
any change in the merits of the contractual relationship.23
References
Bagińska, E. 2010. Rebus sic stantibus clause – contemporaryapplication (Klauzula rebus sic stan-
tibus – współczesne zastosowania), Gdańskie Studia Prawnicze. Vol. XXIV.
Bieniak, M. 2009a. Extraordinarychange of relationships as an conditio to applyArticle 3571 of
civil code – an attempt to define (Nadzwyczajna zmiana stosunków jako przesłanka zastoso-
wania art. 3571 k.c. – próba definicji), Studia Prawnicze.
23
See also Robaczyński (1998), p. 180 and following; Malarewicz (2005), No. 12, pp. 587–588.
Bieniak, M. 2009b. Rebus sic stantibus clause – possibilities of its current use (remarks in the light
of Article 3571 of civil code (Klauzula rebus sic stantibus – możliwości jej aktualnego zastoso-
wania [uwagi na tle art. 3571 k.c.]). Monitor Prawniczy.
Brzozowski, A. 1992. Influence of changes of circumstances on obligations in the Polish law (in
the light of selectedforeigncountries) (Wpływ zmiany okoliczności na zobowiązania w prawie
polskim [na tle prawa niektórych państw obcych]). Warszawa.
Brzozowski, A. 2009. Private law system (System prawa prywatnego). Vol. 6, – Law of obliga-
tion – general part (t. 6 – Prawo zobowiązań – część ogólna). Warszawa.
Jaworski, L. 1998. Rebus sic stantibus clause (Klauzula rebus sic stantibus), PrawoSpółek, No 9.
Lackoroński, B. 2012. The rebus sic stantibus clause and ex contractu liability (Klauzula rebus sic
stantibus a odpowiedzialność ex contractu, Państwo i Prawo.
Lewaszkiewicz-Petrykowska, B. 1970. Follow-upinability to deliver (Niemożliwość świadczenia
następcza), Studia Prawno-Ekonomiczne. Vol. IV.
Machnikowski, P. 2013. Civilcode. Commentary (Kodeks cywilny. Komentarz). Edited by
E. Gniewek and P. Machnikowski. Warszawa.
Malarewicz. A. 2005. Influence of changes in relationship on delivering obligations (Wpływ zmi-
any stosunków na wykonanie zobowiązań), Vol. II, Monitor Prawniczy
Morek, R. 2013. Civilcode. Commentary (Kodeks cywilny. Komentarz). Edited by K. Osajda. Vol.
II. Warszawa.
Mróz, T. 2000. On delivering cash benefits under the change of circumstances (O wykonywaniu
świadczeń pieniężnych w warunkach zmiany okoliczności). Palestra.
Rajski, J. 2010. From the issues of functioning of the principle pacta sunt servanda and rebus sic
stantibus clause in contemporary economic climate (Z problematykifunkcjonowaniazasad-
ypacta sunt servanda iklauzuli rebus sic stantibus we współczesnymklimaciegospodarczym).
PrzeglądprawaHandlowego.
Robaczyński, W. 1991. The return of rebus sic stantibus clause (Powrótklauzuli rebus sic stanti-
bus). Palestra.
Robaczyński, W. 1998. Judicial change of contract (Sądowa zmiana umowy). Warszawa.
Robaczyński, W. 2005. Changes in circumstances and stabilisation of a contract in public procure-
ment (Zmiany okoliczności a stabilizacja umowy w sprawie zamówienia publicznego). Finanse
Komunalne.
Strugała, R. 2010. Court’s intervention in the relationship of obligation on the basis of Article 3571
of civil code (Ingerencjasądu w stosunekzobowiązaniowynapodstawie art. 3571 k.c).
PaństwoiPrawo.
List of Cases
Appeal Court of Lublin, Jul 31, 2013, I ACa 239/13.

Appeal Court of Katowice, Mar 6, 2015, I ACa 564/14.
Appeal Court of Warszawa, Apr 25, 2014, I ACa 1502/13.
Appeal Court of Rzeszów, Mar 28, 2013, I ACa 452/12.
Appeal Court of Wrocław, Jan 24, 2013, I ACa 1362/12.
Appeal Court of Katowice, Mar 6, 2015, I ACa 654/14.
Appeal Court of Warszawa, Jan 17, 2014, VI ACa 307/13.
Supreme Court, Sep 21, 2011, I CSK 727/10.
Supreme Court, Nov 19, 2014, II CSK 191/14.
Supreme Court, Mar 29, 2012, I CSK 333/11.
Appeal Court of Wrocław, Jan 24, 2013, I ACa 1362/12.
District Court of Białystok, Oct 25, 2011, VII GC 127/11.
Supreme Court, Nov 26, 1992, III CZP 144/92.
220 W. Robaczyński
Supreme Court, Dec 2, 1998, I CKN 972/97.

Supreme Court, Feb 25, 2004, II CK 493/02.
Supreme Court, Apr 22, 2005, III CK 594/04.
Supreme Court, May 10, 2006, III CK 336/05.
Supreme Court, May 16, 2007, III CSK 452/06.
Supreme Court, Nov 22, 2007, III CSK 111/07.
Supreme Court, Jan 17, 2008, III CSK 202/07.
Chapter 13
Discussing the (Ab)Normality of Financial
Crises as a Relevant Change of Circumstances
Under Portuguese Law
Manuel Carneiro da Frada and Mariana Fontes da Costa
Abstract The present financial crisis and its ongoing effects on the Portuguese
economy have been sharply and repeatedly reflecting in a multiplicity of contracts.
As a result of this impact lawsuits aiming at the rescission or amendment of con-
tracts due to change of circumstances have become more frequent. Recent rulings
and the debate surrounding them give strengthened pertinence to the specific chal-
lenges related to the recognition of financial crises as a relevant change of circum-
stances. Special difficulties arise here from the requirement to prove the abnormality
of the change in its social context. At the end, the exceptional nature of the interven-
tion in the contract alongside with a concomitant need for counterbalancing in case
of undesirable or intolerable outcomes arriving from the crisis are the main axiolog-
ical basis for a complex set of legal assumptions of varying intensity, supported
around the syndicating role of the principles of good faith.
13.1 The Legal Impact of Financial Crises on Contracts
It is peacefully accepted that Portuguese law recognises the “pacta sunt servanda”
principle. Article (art.) 406(1) of the Civil Code1 (CC) establishes that “[a] contract
must be duly performed and can only be amended or terminated by mutual consent
of the parties or where admitted by law”.
Among the exceptions to a formal understanding of this principle of the binding
force of contracts is the possibility of termination or amendment of the contract due
to a change of circumstances.
1
Approved by Decreto-Lei (DL) no. 47 344, of 25 November 1966.
M.C. da Frada (*)
Faculty of Law, University of Porto, Porto, Portugal
e-mail: mfrada@direito.up.pt
M.F. da Costa
Law Department of the Faculty of Economics, University of Porto, Porto, Portugal
e-mail: mcosta@fep.up.pt

222 M.C. da Frada and M.F. da Costa
In fact, according to the provisions of art. 437(1) of the same Code, “[i]f the
circumstances on which the parties founded the decision of contracting have suf-
fered an abnormal change, the injured party has the right to terminate the contract
or amend it according to equity criteria, provided the demands of the obligations
undertaken seriously affect the principles of good faith and are not included in the
set of risks inherent to the contract”; paragraph 2 adds that “[should] termination be
requested, the other party may object to the request, stating to accept the amend-
ment to the contract under the preceding paragraph”.2
This is, therefore, a possibility generally provided for all contracts, without prej-
udice to the recognition of their binding force; it is the general legal framework in
Portuguese private law.
Without endorsing or conceding to any normative-legalistic positivism – particu-
larly in the core of private law – in a legal system provided with a Civil Code, any
assumptions on the possibility of amending or terminating a contract due to changes
in circumstances must be primarily considered in light of the law.
Therefore, even though Portuguese common contract law provides no exception
to the principle of the binding force of contracts that specifically relates to the occur-
rence of financial crises the question to arise is whether they can be subsumed under
or are outside the scope of application of said art. 437(1).
This point is particularly important at a time when the country is undergoing a
severe financial crisis: the general effects of the global financial crisis that erupted
in 2008 were worsened by national circumstances – simpliciter, of public over-
indebtedness – which expanded those effects and caused others of a similar nature.
Thus, the ongoing crisis in Portugal, within its range of causes, has been sharply
and repeatedly reflecting in a multiplicity of contracts. As a result of this impact,
lawsuits aiming at the rescission or amendment of contracts due to change of cir-
cumstances have become frequent. For example:
In its judgment of 14 June 2012, the Lisbon Court of Appeal (TRLx: 187/10.4TVLSB.
L2-2°) upheld a request for the amendment of a credit facility agreement to finance a wine
production project based on a subsequent change of circumstances, due to the “(…) serious,
unexpected and unavoidable economic crisis that has been ongoing since 2008 (…)”, which
led to a decrease by over 50 % in revenue from wine sales in 2009 (against 2006), thus
exceeding, according to the court, the normal contractual risk. This decision was reversed
on appeal by the Supreme Court of Justice (STJ 10-Jan-2013: 187/10.4TVLSB.L2.S1), on
the argument that, even though the economic and financial crisis could, in abstract terms,
create imbalances likely to create situations of abnormal change of circumstances, not all
defaults occurred in times of crisis have a cause/effect correlation with it; in the absence of
evidence of a causal connection between the deterioration of the plaintiff’s economic
capacity and the international economic crisis, the situation cannot be subsumed under art.
437(1).
On the other hand, the judgment of the Lisbon Court of Appeal of 12 February 2013
(2831/10.4TVLSB.L1-7), reads, sensu stricto, that the devaluation of a plot of land as a
result of the depreciation felt throughout the entire real estate sector is a vicissitude
2
This provision was included in the Portuguese Civil Code and has not been subject to any amend-
ment to date.
13 Discussing the (Ab)Normality of Financial Crises as a Relevant Change… 223
“unavoidably covered by contractual risks” and is, therefore, outside the scope of the prin-
ciple of change of circumstances.
However, in a judgement dated 19 February 2013, that same court (TRLx:
1117/10.9TVLSB.L1-1) stated, by way of obiter dictum, that the contraction in lending,
consumer credit and financing for economic activity and for the real estate sector, which
resulted from the 2008 crisis, constitutes an abnormal change of circumstances, in the sense
contemplated by art. 437(1). The court concluded, nevertheless that, in that particular case,
such change was not a decisive factor for the increase in the risk associated with the pay-
ment of the agreed price by promissory buyers, which was particularly high even before
circumstances changed and did not undergo significant changes as a result thereof.
Very recently, and at odds with the position held by the majority of Portuguese doctrine
and jurisprudence, in its judgment of 5 November 2013, the Coimbra Court of Appeal
(TRC: 1167/10.5TBACB-E.C1) stated that financial crises cannot be considered totally
unpredictable abnormal circumstances, but rather cyclical situations, repeated in time,
which constitute a risk inherent to contracting in itself.
Particularly topical, also in public opinion, is whether or not the so-called “swap”
contracts are subject to change of circumstances, as some of these contracts have
proven excessively burdensome for the entities that subscribed to them, given the
continued drop in interest rates in the Euro Zone.3 The general doctrine and juris-
prudence consider, and rightly so, that the random nature of a contract does not
exempt it from the framework of change of circumstances, if its inherent risks are
exceeded (Serra 1957: 332 et seq.; Telles 2002: 347, footnote 318; Ascensão 2007:
524; M J Costa 2009: 344; Frada 2009: 668). The main problem is, however, deter-
mining when and to what extent these contracts can entail a limitation of their ran-
dom essence, which legitimises a judicial intervention for their termination or
amendment within a scenario of financial crisis.4 Naturally, it becomes harder to
justify so if such contracts were concluded already within the scenario of financial
instability or volatility.5
In its judgment of 31 January 2013, the Guimarães Court of Appeal (TRG: 1387/11.5TBBCL.
G1) expressly advocated the possibility of applying the change of circumstances institute to
swap contracts despite their random nature.6 Furthermore: the collective of judges held that
the 2008 crisis was an unforeseeable event, which generated absolutely abnormal circum-
stances, and led to such an intense worsening of the imbalance in contractual performances
that their maintenance would be contrary to the principle of good faith. Thus, the ruling
3
On this particular issue, defending, in light of art. 1245 CC, the nullity of a purely speculative
swap agreement (by considering it to be subsumed under the concept of gambling or betting) and
the possibility of application to the swap agreement, when valid, of the change of circumstances
institute provided for in art. 437–439 CC, Freitas (2012): 943 et seq. Also on this topic, recently
P. Pinto (2014).
4
Other concepts and principles of contract law may be invoked in this regard, such as: error on the
object of the contract, culpa in contrahendo due to lack of information provided by banking insti-
tutions to subscribers of such products, usurious contract, etc. On the liability for informations
under the Portuguese legal system, J. Monteiro (1989): 335 et seq.
5
It is, than, possible, altough not necessarily, that the fulfilment of the unpredictability requirement
fails, leading to the refusal of the revision of the contract based in change of circumstances
(J. Costa (2012): 321 et seq.).
6
Opposing the decision given in the judgment, for considering that the drop in interest rates is
already covered by contractual risks, Calheiros (2013): 11 et seq.).
concluded that, although swap contracts represent a financial instrument specially designed
to manage interest rate risk, the fluctuations of this rate during the crisis that began in 2008
exceeded the risk inherent to the contract sub judice, and thus the termination of such con-
tract was justified, under and pursuant to the framework of subsequent change of circum-
stances provided for and governed by art. 437–439, with retroactive effects.
This decision by the TRG regarding the relevance of the financial crisis of 2008 as
grounds for contract termination due to abnormal change of circumstances was confirmed
by the STJ in its recent judgement of 10 October 2013 (1387/11.5TBBCL.G1.S1), which
will certainly have a paradigmatic impact on this topic.
However, it is still early to pass definitive judgement on the significance of the

financial crisis in Portugal as grounds for a deviation from the principle of the bind-
ing force of contracts under the aforementioned art. 437(1) CC.
Not only many of the legal proceedings filed within this financial context are still
not concluded, but doctrine, notwithstanding the increasing attention that the sub-
ject has been given, has not yet offered or sedimented completely clear conclusions
in this regard.
In addition, some decisions that could constitute leading cases in the matter –
namely due to the fact that they were issued in cases of significant economic rele-
vance – emanate from arbitration courts and are not usually made public.
Lastly, it should be taken into account that many of the contracts that are highly
sensitive to changes in the financial environment concern public-private partner-
ships (in Portuguese jargon, “PPPs”), based on project finance contracts. Such ven-
tures, contracted between the State and private groups, in areas such as construction
and exploitation of road infrastructure, hospitals, seaports and various long-term
concessions, etc., are often regulated by ad hoc clauses and statutes, which provide
for specific mechanisms for rebalancing, renegotiation and compensation in case of
changes in several different variables, either financial or arising therefrom.7 In these
situations, the intervention of such relationship-stabilising mechanisms naturally
reduces conflict.
In any case, and despite this, the State has introduced, through legislation, sev-
eral amendments to the framework of such partnerships, based on the change of the
country’s financial situation. The State’s intervention has, moreover, covered vari-
ous sectors, such as energy, which are concessioned and operated in a situation of
monopoly or oligopoly by private entities, in order to reduce the expenses borne by
the State. This intervention has generally been accompanied by a demand for politi-
cally negotiated financial rebalancing, accepted by the private entities. Its real
meaning and impact is, however, currently the object of a heated public discussion
among us.
A financial crisis always presents a multitude of harmful consequences for par-
ties in contracts.
Due to their nature, emphasis goes to its effects on the cost and access to credit,
which is currently very restricted. Moreover, as a consequence of the scarcity and
7
As an example, take clauses 86 (“Force Majeure”) and 94 (“Financial Balance”) of the Concession
Agreement signed between the Portuguese Government and Ascendi Norte, Auto-estradas do
Norte, S.A., as amended on 5 July 2010, available at www.utap.pt.
high cost of money, many initiatives continue to be cancelled, some already under-
way and dependent on funding. Contracts relating to financial products or aimed at
hedging the risk of changes in the cost of money were also affected (as shown
above).
Thus, several constellations of problems arise. For example:
(a) May a lending entity which has granted a very long-term loan invoke the finan-
cial crisis (difficulties to refinance itself or the perception of greater credit risk
or greater risk associated to the sovereign debt that stood as collateral, for
example) to amend a contract and increase interest or request the early repay-
ment of the amount loaned?
(b) May a bank which has accepted to finance a specific project (e.g., a motorway)
under a project finance scheme avoid the consequences of the decrease of credit
costs or its own compensation if the profitability of the said motorway for the
borrower (which would pay for such costs) drops dramatically as a result of
decreased traffic derived from less use by potential users in financial distress?
(c) May a bank refuse the amendment or early termination of a contract designed
to hedge the risk of changes in the interest rates of another loan, which it has
also granted, upon verifying that the progress of interest rates, as a result of the
stagnation/deflation that set in with the crisis, is currently generating, and will
predictably do so for a long time, enormous losses for the other party8?
The aforementioned judgment of the STJ of 10 October 2013 (1387/11.5TBBCL.
G1.S1), which maintained the previous decision of the TRG (31-Jan-2013:
1387/11.5TBBCL.G1) to uphold a request for the termination of a swap contract on
the grounds of subsequent change of circumstances, as a result of an unexpected
drop in interest rates caused by the financial crisis, provided a negative answer to the
last question and constitutes an important input for the prognosis of the courts’
response to this issue in the future. This judgment marks an important break with
the impression – still to prove – of a certain caution that has, to this date, character-
ised the majority of judgments in proceedings brought about on the basis of changes
in the financial context having in mind especially certain consequences generated
by the 2008 crisis.
We do not ignore that legislative or regulatory interventions were carried out to
face the adverse effects of the financial crisis (for example, DL no. 227/2012 of
25-Oct. and DL no. 35/2013, of 28-Feb.). Although with the primary aim of protect-
ing typically disadvantaged contractual parties from unilateral changes to contracts
by the initiative of banks (e.g., in consumer credit or house loans), these can be
interpreted as a recognition that the financial crisis is relevant and could, if invoked
by borrowers, hinder the exercise of certain contractual prerogatives or lead to the
amendment of the contract.
8
Such questions are similar to those put across by R. Pinto Duarte in an intervention (unpublished)
at the Judicial Studies Center – CEJ [Centro de Estudos Judiciários], on 1 March 2012, on the
“Possibility of a unilateral amendment of contractual obligations (in particular those resulting from
financing agreements).”
13.2 Justifying the Effects of a Relevant Change

of Circumstances
Although it is early to draw definitive conclusions on how the current crisis is

regarded upon, within the Portuguese legal context, one can certainly expect that
Portuguese courts and doctrine continue to develop their criteria in line with
Portuguese tradition when it comes to understanding the effects of change of cir-
cumstances, such as established by art. 437(1) CC.
Among the theoretical foundations usually invoked to justify such effects, the
theory of the basis of the transaction – of the change or modification of the basis of
the transaction (Wegfall der Geschäftsgrundlage) – takes up a privileged position in
jurisprudence (Vide recently STJ 10-Jan-2013: 1387/11.5TBBCL.G1.S1 and STJ
18-Jun-2013: 493/03.4TVLSB-A.L1.S1). Certainly contributing to this is the fact
that the aforementioned art. 437(1) can be considered, by its very wording, as con-
ducive to such an understanding, as it provides for the termination or amendment of
a contract only “if the circumstances under which the parties founded the decision
to contract have suffered an abnormal change”. In fact, the preparatory works of the
Civil Code already evidenced the influence of this doctrine in the content of this
provision.9
The theory of the basis of the transaction was also subject to special consecration in art.
252(2) CC, which specifically regulates the problem of error on the basis of the agreement.
Assessing whether a specific situation falls under the scope of the principle of change of
circumstances or of error on the basis of the agreement is not always simple. The element
of distinction traditionally employed relates to the fact that the error reports to either the
past or the present, whereas the change of circumstances refers to the future (by all, C. Pinto
2005: 505). The problem appears, however, particularly acute with regard to the so-called
“error in futurum”, i.e., a false or flawed prediction of the future evolution of current cir-
cumstances. While some authors believe to be dealing with a typical situation of subsequent
change of circumstances, subsumed under art. 437 (by all, A Monteiro 2008: 81 et seq. and
Ferreira 1998: 90), there are others who argue that the foreseeable change of future circum-
stances or the current error by the parties on the future representation of the basic circum-
stances of the agreement substantiate cases of error (regarding the first case Cordeiro 2014:
291–292 and the second case Almeida 2013: 5 et seq.).
It is, therefore, natural that the courts, while judging and justifying the applica-
tion of art 437–439 CC, resort to formulations that are tributary of this doctrine,
even when they do not specifically discuss or invoke it, or even when they do not
draw from it nothing more than a mere dogmatic and axiologically neutral
formula.
In doctrine, the scenario is more diverse.
9
Despite some criticism to the theory of the basis of the transaction, in its preliminary draft to the
1966 Civil Code, Serra (1957) already shows hints of the prevailing influence of this theory – first
developed by Oertmann – in the proposed legislative solution regarding change of circumstances.
On the important role of prominent Portuguese jurists, such as Guilherme Moreira, Vaz Serra
and Manuel de Andrade, in the strong influence of German doctrine on Portuguese civil law, J
Monteiro (1997).
One of the most notable features of Portuguese legal science is its openness to
the outside world and its capacity for dialogue with the most diverse guidelines that
arise at any given time, within other relevant doctrinal spaces.
Thus, in the matter in hand, the lines of Portuguese thought present themselves
today quite rich, also expressing various dogmatic discussions.
Initially, even before the Civil Code of 1966, the “theory of unpredictability”
(“théorie de l’imprévision”, originating from the French State Council), as well as
the “theory of presupposition” (“Die Voraussetzung”, by Windscheid) were espe-
cially well accepted in the doctrine.10 When drafting the new Code, however, the
favour of contemporary doctrine clearly went ultimately to the theory of the basis of
the transaction, as it recognised the limitations of the former two theories, despite
their merits (Andrade 2003: 406; Serra 1957: 308 et seq.; Varela 1950: 262 et seq.).
The exegetical stage that usually follows the compilation of a Code undertook to
further emphasise the predominance of the theory of the basis of the transaction, as
per the wording of art. 437(1) of the new Code.
However, the progressive temporal gap and the need to critically rethink said
provision so as to draft more accurate decision models – given the vagueness of the
theory of the basis of the transaction and the consequent oscillations of jurispru-
dence and insecurities in reasoning – led to the flourishing of new doctrinal
orientations.
Generally speaking, the Portuguese doctrine currently highlights:
(1) The importance of contractual justice, alongside private autonomy, and the
basic relevance of the intuition underlying the rebus sic stantibus clause, either
subjectively or as an imposition of the legal system (Ascensão 2007: 519–520;
A Monteiro 2003: 66; Hörster 2007: 580; Martinez 2015: 150; Duarte 2007:
142 et seq.)
(2) The materialisation of the concept of exemption of compliance in accordance to
the principles of good faith as a decisive criterion (Cordeiro 2007: 1106 et seq.)
(3) That, in fact, art. 437(1) contains a set of concepts and phrases organised into a
network of mutually referenced meanings, whose core is composed by the
“principles of good faith”, a ductile phrase that refers to objective requirements
of justice which are, however, susceptible to be shaped by the representations of
the parties (Frada 2009: 678 et seq.)
(4) The need to refine the scope of application of the termination or amendment of
a contract due to change of circumstances, as a result of the vagueness of the
basis of the transaction theory, from other dogmatic fields such as the theory of
error or of impossibility (Cordeiro 2014: 291 et seq.)
10
We must point out, however, the terminological imprecision associated with the doctrinal treat-
ment of the issue of change of circumstances in the period in question, which is liable to cause
misunderstandings. Thus, for example, while referring to the issue of “presupposition”, the posi-
tion advocated by Manuel de Andrade seems to be towards the theory of the basis of the transac-
tion, as formulated by Lehmann (Andrade 2003: 403 et seq.); with the same point of view, Cordeiro
(2007): 923. Also, L. Carvalho Fernandes resorts to the term “unpredictability” to identify the
issue of change of circumstances, without, however, adhering to the theory of the French State
Council (Fernandes 2001).
(5) The importance of observing the space of interpretation or integration of con-

tracts in the distribution of contractual risks (Cordeiro 2014: 299 et seq.)
(6) The relevance of alternative termination grounds as ways of reacting to changes
in the context of long-term contracts, thus withdrawing space and prominence
from art. 437(1) (Machado 1991c); A Monteiro 2004: 134 et seq.; L Vasconcelos
2010: 113 et seq.; F Pinto 2013: 338 et seq.)
(7) The relevance of the construction of more accurate risk distribution criteria,
which materialise in disparate, but generalizable legal regulations (Machado
1991a): 257 et seq.)
(8) The adequacy of the notions of frustration of contract or imbalance in contrac-
tual performance in the implementation/consolidation of the relevant changes
of circumstances (Idem ibidem: 305 et seq.; Pereira 2001: 35 et seq.)
(9) The configuration of financial (and political) crises as “major change of circum-
stances” that must not unilaterally encumber one of the parties and thus repre-
sent a risk to all (in doubt, or in the absence of specific factors, this risk shall be
divided equally between the parties) (Frada 2009: 682 et seq.)
There is, therefore, an eclecticism of doctrinal positions, which seek to explore
all contributions deemed useful for the elucidation of the issue of change of circum-
stances. Even older doctrines, such as the windscheidian presupposition, have found
voices reminding of its relevance, for example, to meet the shortcomings of the legal
framework.11
13.3 The Required Abnormality of the Financial Crisis

and Other Conditions of Intervention in the Contract
Regardless of the adopted theoretical basis, in accordance with the provisions of art.
437(1), our legal system requires abnormality in the change of circumstances to
justify the termination or amendment of the contract.
Therefore, strictly speaking, we reject the doctrine of the tacit clause of “mainte-
nance” of circumstances – rebus sic stantibus – without prejudice, of course, to its
symbolic value. Not just any change is relevant, it must be considered abnormal.
The law does not define abnormality. The text suggests that no extraordinary,
highly unlikely facts per se are required. But abnormality always requires an
11
Cf, recently, Frada (2012): 504, emphasising the restriction that the legal requirement of abnor-
mality in change of circumstances represents, which is, however, avoided by the theory of presup-
position, This can be very important, since many contracts, especially high-profile ones, are
preceded by preamble and preliminary considerations which may indeed represent presuppositions
likely to give rise to termination or amendment of the contract, should they not take place, regard-
less of any “abnormal” changes: if something was explicitly presupposed by the parties, there is
always (besides what, expressis verbis, the law provides) relevance when developments belie such
presupposition.
unexpectable change from the normal course of events, and with a considerable
impact on the contract.
This requirement corresponds to a significant restriction on changes that are rel-
evant for the purposes of art. 437(1). Not all changes allow terminating or amending
a contract, even if their impact is significant. Hence the interest, namely, of the
windscheidian theory of presupposition, in the establishment of grounds for con-
tract termination or amendment, beyond the law, when the course of circumstances
deviates from what the parties laid out in the initial recitals of the contracts they
signed or in reference documents (accounting, urban development, etc.) that formed
the basis of their decision to contract and which, not infrequently, are an integral
part of the respective contracts, as annexes (Frada 2012).
We would add, of course, the possibility of the parties themselves including con-
tract revision clauses for the event of a hypothetical subsequent change of circum-
stances, such as hardship clauses (Gomes 1997). In such cases, the issue of the
scope of the binding force of the contract in face of the effects of the financial crisis
shall be, first and foremost, an issue related to the interpretation of the discipline it
entails and of its scope or boundaries.
In doctrine and jurisprudence, the abnormality of the change is usually associ-
ated with the requirement of unpredictability, but it also appears associated with the
requirement of significance of the impact of such change in the contract and either
emerging autonomously as a stand-alone requirement, or embedded in good-faith
(Telles 2002: 343–344; Ascensão 2007: 522 et seq.; Cordeiro 2014: 322 et seq.;
Fernandes 2001: 291).
According to the judgment of the Porto Court of Appeal of 5 December 2003 (TRP:
0355837), “[a]n abnormal change of circumstances – art. 437(1) CC – implies unpredict-
ability and uniqueness of supervening facts that cause a manifest imbalance in the mutual
contractual performances of the parties, thereby altering the negotiating framework existing
at the date of the agreement, both regarding preliminary matters and the conclusion of the
agreement”.
The Supreme Court of Justice, in its judgment of 10 January 2013 (187/10.4TVLSB.
L2.S1) upholds a more generous point of view: terminating or amending a contract based
on abnormal change of circumstances requires “(i) that the change occurred is not the fore-
seeable development of a condition known at the date of conclusion of the contract and (ii)
that such change causes the fulfilment of the obligation to offend the principles of good
faith”. The aforementioned judgment also requires the existence of a factually demon-
strated direct correlation between the new constraint (in the present case, the current eco-
nomic crisis) and the detrimental consequences arising to the fulfilment of the contract
(degradation of the actual economic capacity of the agent) for the change to be considered
abnormal.
Despite the proximity and frequent coalition between the abnormality of the
change of circumstances and its unpredictability, there is no equivalence between
the two requirements, because an abnormal fact may not be abstractly unpredict-
able.12 In long-term financing agreements or financial product sales contracts, for
12
The distinction will certainly involve the differentiation between objective reality and conceived
or represented reality.
In doctrine, M J Costa (2009): 338 invokes the greater breadth of the concept of abnormality
regarding the requisite of unpredictability, maintaining that this should be dispensed within cases
example, it is normal for banks and other entities professionally engaged in these
operations to set up a comprehensive palette of risk scenarios. Even though they are
equated or integrated in comprehensive mathematical models, they may still be con-
sidered abnormal if the probability of their actual occurrence is remote.
In a judgment dated 19 February 2013, and regarding the consequences of the financial
crisis of 2008, the Lisbon Court of Appeal (1117/10.9TVLSB.L1-1) deemed it incorrect
that the basic criterion for ascertaining the occurrence of an abnormal change of circum-
stances is unpredictability. In the words of the Panel of Judges, “[w]hat matters is the con-
firmation of a significant change in the conditions that constituted the circumstantial
framework in which it was customary for a certain type of contractual relationship to take
place, regardless of whether or not such situation could be regarded as a consequence of
previous occurrences.”
With regard to the current financial crisis, the aforementioned judgment of the Supreme
Court of Justice of 10 January 2013 (187/10.4TVLSB.L2.S1), reads as follows: “[t]he law
does not require that this be an unpredictable occurrence; however, it deems necessary for
the change of circumstances to have been unpredictable: there is unpredictability when the
future development cannot be predicted shortly after the occurrence has taken place.”
Therefore, a distinction must be made between the abstract predictability regard-

ing the possibility of occurrence and concrete predictability. It is concrete unpre-
dictability that can configure abnormality in change of circumstances. This
differentiation, which is normally dismissed, proves crucial for the issue at hand.
The point is, the financial crisis that has come upon us and affects us was not alto-
gether sudden, unlike what happens with many political crises or social and military
upheavals.
Rather, as per its nature, it underwent a certain incubation period and gradually
set in, over a given period of time, throughout which its signs became progressively
evident. Especially considering the global scale, it cannot be said that it had not
been predicted by some, or that it was not, or could not, have been considered pos-
sible or even predictable by a number of financial experts, although the danger of its
imminence had remained hidden from most economic agents (Financial Crisis
Inquiry Report 2011: 187, 279 and 386).
Thus, unpredictability must be considered as a minimum probability of actual
occurrence, in accordance with the standards and expectations of a regular contract-
ing party within their typical sphere of knowledge.
Art. 437(1) also sets forth a condition requiring that the change is not covered by
the risks inherent to the contract itself.
This limitation, expressly enshrined by the lawmaker, was the subject of an anal-
ysis by Portuguese courts following the political changes that took place in the
country after the Revolution of 25 April 1974.
There was some discussion among us, for example, on whether or not the nationalisation of
a company (which took place following the Revolution of 25 April 1974) whose shares had
been sold previously to the Revolution with deferred payment comprised a loss or a deterio-
where good faith would require the other party to accept that the contract would be contingent on
the maintenance of the circumstance that underwent the change. With a different opinion, Cordeiro
(2010): 291.
ration of the object for the purpose of the rule that assigns the corresponding risk to the
owner (cf. art. 796(1) CC). During the debate, normal cases of perishing of goods were
distinguished from the possibilities of legal perishment (cf. Varela and Mesquita 1982: 7
et seq. and with a different view Xavier 1983: 15 et seq.).
It is our opinion that a nationalisation resulting from a political upheaval certainly con-
stitutes a major change of circumstances (as expressed by Kegel) which, because it affects
the basic political and economic coordinates of a society, should cause its effects to be
distributed (in principle and in doubt) equally among all members of the community.
Therefore, art. 796(1) does not apply. The legal perishing of a set of shares (of a nation-
alised company) as a result of the aforementioned upheaval cannot but be considered
abnormal.
Thus, Portuguese law states that the obligation to support the risk of a crisis
under a legal or contractual regulation rules out, in principle, the possibility of ter-
minating or amending the contract due to change of circumstances. This is what
stems from the last part of art. 437(1).
However, within the structure of the precept, this is (apertis verbis) a negative
requisite – ruling out the possibility of contract termination or amendment – and not
(so much) a positive qualifying condition of the very abnormality of the change and
compliance with the central element of predictive provisions constituted by the
aforementioned abnormality of the change of circumstances.
This point suggests an important comment: according to the structure of the legal
text, it seems that once the abnormality (and other requisites) of the change of cir-
cumstances is proven, the doubt on whether or not such change is relevant in light
of the contract’s own risks (arising from what was agreed to by the parties or from
a specific legal provision that, somehow, assigns them as naturalia negotii, to some
of the parties) should be resolved in favour of the relevance of the change and the
possibility of intervening in the contract.
According to this mindset, the burden of reasoning favours a review of the con-
tract in cases where there is uncertainty regarding the existence of a legal or conven-
tional distribution of risk in the opposite direction. This allows for the possibility of
terminating or amending the contract.
It should be recalled that the distribution of the contract’s own risks, which is
liable to rule out intervention due to a change of circumstances, is sometimes
obtained through the interpretation or integration of the contract. Therefore, such
distribution, when configured as a negative requisite on the precept’s economy,
favours termination or amendment where the result of said interpretation or integra-
tion is uncertain or insecure.
Also excluding the possibility of resorting to the change of circumstances insti-
tute is, in principle, a delay in performance from the injured party, in accordance
with art. 438 CC (except if there is no conexion between the delay and the ocurred
change of circumstances). Thus, if the injured party was in arrears at the date of
verification of the change of circumstances, it loses the right to terminate or amend
the contract on that basis. Otherwise, if the change of circumstances predates the
delay of the debtor, it is not the simple fact that the later incurs in arrears that pre-
vents it from asking for the termination or amendment (Lima and Varela 1987: 416).
Despite its extent, the intervention in the contract due to a change of circum-
stances is distinctly subsidiary.13
However, greater doubts arise from the terms of the concurrence of the princi-
ple of change of circumstances and other solutions, which also tend to be subsid-
iary, such as the theory of trust, unjust enrichment or the abusive exercise of
certain faculties or powers contractually established, in a scenario of changed
circumstances.14
In any event, the requisite of abnormality in changed circumstances can only be
truly understood within a mutual reference framework, considering all other requi-
sites set forth by the legal system for such purpose. What is essential is the law-
maker’s call to the “principles of good faith,” to which is assigned a decisive
syndicating and differentiating role.
And, naturally, discussion is warranted on whether such a phrase is, after all, but
the appeal to an objective principle of (maintaining or safeguarding the) justice for
the contract or for the contractual relationship (Ascensão 2007: 524 et seq.).15
Still, in the version of the precept, the idea is not so much to positively promote
the justice of the contract, as it is to, more reservedly, prevent injustice. In other
words, it is the criterion of injustice, and not of justice, that gains relevance.16 This
is in line with the requisite of the exceptional nature of the intervention in the con-
tract, as ultima ratio of the system to avoid the undesirable or intolerable, also pres-
ent in the requisite of the abnormality of the change.
At the end, we have a complex set of assumptions, of varying intensity and
ranked under a moveable system around the axis of what, pursuant to law, are the
“principles of good faith”. It is up to jurisprudence to bring them about and weigh
them.
Change of circumstances more shows, in a broader sense, that, in the legal sys-
tem, there is a fracture line between “pacta sunt servanda”, if formally understood,
and contractual justice, two principles of contract law which need to be harmonised
in the case at hand, in order to reflect a materially fair understanding of private
autonomy: this will not always be done in the same manner, as their articulation is
moveable; it all depends on the issue of knowing what, ultimately, is the basis for
13
Highlighting the subsidiary nature of change of circumstances in relation to contractual error,
risk, impossibility, interpretation and integration, as well as the protection of trust, Cordeiro
(2010): 292 et seq. and Fernandes (2001): 264 et seq.
14
As a starting point, concurrence shall be elective. However, there must be a real possibility to
resort to more than one fundament for the same purpose. Indeed, the alternative solutions listed in
the text are undoubtedly different.
15
Still, it can be said that the expression “good faith” is also relevant, even though the observance
of representations of the contractual parties itself is not called into question. The fact is, because it
calls to the representations and attitudes of the parties, “good faith” also constitutes an indispens-
able element for ascertaining justice (Frada (2003): 363 et seq. and 862 et seq.).
16
The point is relevant: it becomes easier to converge on what constitutes injustice than on what
represents justice in a contract (which, in its way, and in our sphere of analysis, corresponds to a
transmutation of Schmidt-Rimpler’s doctrine of the contract as a guarantee of justice
[Richtigkeitsgewähr] within the concept of the contract as a guarantee of non-injustice).
the binding nature of contracts (Ribeiro 2007: 35 et seq. and Frada 2003: 434 et seq.
and 799 et seq.).
If we wish to try out a rough draft of a model framework to understand its mutual
workings, it can be said that, in general, when a contract is concluded, the legal
system is largely disinterested in the justice thereof, and is satisfied with merely
ensuring the free and informed exercise of private negotiation autonomy [for exam-
ple, and namely via culpa in contrahendo, setting forth the duty to inform for one
party in benefit of the other (M. F. Costa 2007: 367 et seq.)]. Intervention only
occurs, as a rule, in cases of flagrant or obvious injustice when combined with dis-
turbances in the formation of will (paradigmatically, the provisions concerning usu-
rious contract, in art. 282 and 283 CC). Certainly because it is believed to be just to
respect the will of the parties and that the requirement for a consensus in a contract
ultimately avoids injustice.
However, the legal system becomes much more demanding towards the control
of justice or of contractual balance throughout the duration of relationships already
(previously) established, especially in the event of subsequent changes. Such con-
cern is shown in many legal, mandatory or subsidiary provisions, which bind the
parties to a proper and reasonable – tout court, just – conduct for the duration of the
relationship, namely in the use of powers and faculties to which they are entitled and
actively fostering contractual balance: cf., among others, the provisions of arts. 334,
400, 762 (2), 812, 1040 CC, etc. The very discipline of the change of circumstances,
which constitutes an outcropping of such concern, warrants reading and interpreting
in this context.
In short: the legal system respects the justice which (at the time of conclusion of
the agreement) was originally intended by the parties. However, upon the conclu-
sion of such agreement, it does not resign, allowing for relational justice to change
according to fortuitous contingencies. It considers intolerable for chance to generate
injustice and imbalance between the parties.
The standard for this intolerability is not, as already noticed, any requirement
regarding the (inexorably) extraordinary nature of a change of circumstances, but a
pattern of abnormality.
In order to define this pattern, the criterion of (supervening) impossibility is
unusable, not only because it is too restrictive, but also because there is a specific
regime for such cases, which exempts the debtor from his obligations (arts. 790
et seq. CC). Instead, in Portuguese doctrine, what is being discussed today is, in
essence, the scope of the institute of impossibility, namely knowing whether or not
the impossibility of attaining the purpose of the contractual performance
(Zweckerreichung, Zweckstörung) constitutes a case of impossibility.17
17
For a broad notion of obligation, encompassing the purpose, Cordeiro (2007): 1094 and Pereira
(2001): 11 et seq. Nevertheless, we prefer a perspective that does not encompass the purpose in the
concept of contractual performance, as well as a differentiated approach, which reduces the margin
for impossibility and opens the way for change of circumstances. With a precursory piercing criti-
cism of a broad concept of performance and impossibility, Machado (1991a): 283 et seq. For fur-
ther developments see also Faria (1990): 359 et seq.
Focusing on excessive burden, it is not qua tale a criterion used in Portugal.

However, such burden undoubtedly constitutes a sign of the unenforceability of
obligations undertook under the principles of good faith, as required by law for the
possibility of contract termination or amendment.
Still, excessive burden will naturally gain added importance in gratuitous con-
tracts. In fact, in onerous contracts, it will often tend to simultaneously translate into
a distortion of equivalence. In any event, and in view of Portuguese law, it is essen-
tial that the change of circumstances brings about a rather significant increase of the
sacrifice required from at least one of the parties to the contract.
Another is the risk of the cost of money, or that of the change in purchasing
power within a crisis scenario. As for this latter aspect, under and pursuant to art.
550 CC, which enshrines the principle of monetary nominalism, the risk of currency
devaluation shall be borne by the creditor whenever there is a pecuniary obligation
of amount or quantity at issue. Even though this provision reinforces the principle
of the binding nature of the contract in the event of fluctuations in the value of the
currency in circulation (traditionally associated with periods of financial instabil-
ity), it seems reasonable to accept that it does not exclude the applicability of the
institute of change of circumstances, whenever requisites are met for the termina-
tion or amendment of the contract.18
One can also ask whether banks are allowed to unilaterally change interest rates
(especially spreads) as a result of the crisis. The answer should be affirmative, but
its limits need to be emphasised: limits that have to be enforced even if such amend-
ments emerge from clauses intended to adapt the contractual terms to change of
circumstances, and especially if such clauses have been introduced into the con-
tracts before the onset of a crisis which was (also) unexpected for borrowers.19
Unilaterally decided contractual amendments can be syndicated. All contractual
powers must be exercised in a reasonable and balanced manner (art. 400, 762(2),
334 CC). Plus, contractual amendments may be nullified if they are used by one of
the parties in the event of an unexpected global financial crisis not specifically
regulated under the contract, to completely shift the burden of risks resulting from
such a crisis to the other party: otherwise, the core of art. 437(1) would be offended.
In general, when the contract contains specific discipline to deal with a change of
circumstances, the issue may arise of ascertaining the validity of such discipline. It
is important to know whether the risk distribution that was agreed upon is correct
and justifiable, since there is an inalienable core of contractual public order in the
principle of change of circumstances (resulting in unenforceability justified by the
principles of good faith or in the observance of minimum contractual justice).
18
Defending the prevalence of the principle of monetary nominalism over the framework of super-
vening change of circumstances enshrined in art. 437, by all, Faria (1990): 119 et seq. and
Fernandes (2001): 311–313. With a different opinion, M J Costa (2009): 742–743; Cordeiro
(2007): 1028; A Monteiro (1984): 21–22; Freitas (2012): 966 and, thus suggests, Machado
(1991b): 431.
19
Namely, by resorting to general contractual clauses, as there the legal system exerts tighter con-
trol over the efficacy and validity of such contractual provisions.
In line with the foregoing, the Bank of Portugal, via a circular note dated 17/5/2011 (under
no. 32/2011/DSC), laid out guidelines to be followed by financial institutions in the drafting
of clauses that enable them to “unilaterally alter the conditions agreed upon, namely the
interest rate or amount of other applicable charges”.
Among them20:
«1.1. In cases where the credit agreement provides for facts that constitute “plausible
grounds” in light of the provisions of article 22(1)(c) of DL no. 446/85 of 25 October
[Portuguese law regulating the conclusion of contracts that make use of general contractual
clauses], or which correspond to “market variations” for the purposes provided for under
article 22(2)(a) of the said law, financial institutions must confirm such facts with sufficient
detail.
1.2. Facts specified in the agreement must:
(a) Be external or foreign to the financial institution, and be beyond its sphere of influence,
action or control; and
(b) Be relevant, exceptional and have an underlying reasonable motive that is based on an
objective judgement or criterion.
1.3. Financial institutions must set a reasonable deadline to enable consumers to exer-
cise their right to terminate the credit agreement.
(…)
The Bank of Portugal considers that such deadline must not be less than 90 days.
(…)
1.5. The clause that allows for unilateral changes in interest rates or other charges must
provide for the reversal of such changes when and insofar as the facts which justified the
change no longer exist, and set forth the necessary procedures in order to produce the cor-
responding effects.
2. Unilateral changes to the interest rate or other charges in credit agreements.
2.1. Principles
In situations where, pursuant to law and under the credit agreement, financial institu-
tions are legally entitled to change interest rates or other charges in credit agreements, the
exercise of such faculty must:
(a) Be contingent on the existence of a relation of causality between the event being
invoked as plausible grounds and the content and scope of the change that the financial
institution intends to introduce;
(b) Obey the principle of proportionality, avoiding the creation of unjustified imbalance in
the contractual relation.
(…)».
Thus, it should be borne in mind the question of whether a contractual clause can
affect the risk of change of circumstances solely for one of the parties. The answer
may be in many cases negative: if the financial crisis is a general risk, both the bor-
rower and the lender must assume such risk [unless the adjustment to the exact
terms contained in the clause was voluntarily and knowingly weighted by the par-
ties as part of the overall balance of the contract upon its conclusion, as underlined
also by Fernandes (2001: 289)].
20
We bear in mind the considerations of Rui Pinto Duarte in the aforementioned publication on
“The possibility of unilateral change in contractual obligations (in particular, those resulting from
financing agreements)”, several of which regarding the principle of contractual balance described
ahead. With regard to the latter, we can also refer to P Vasconcelos (2009): 417 et seq.
Generally speaking, contracts are onerous. The theory of equivalence distur-

bance (Äquivalenzstörung) constitutes, in such cases, a significant sign of the law-
fulness of an intervention regarding the contents of the contract.
However, precautions must be taken. First of all, because it is not just any equiva-
lence that is to be restored: it must be the one corresponding to the economy of the
contractual arrangement as initially intended by the parties. Thus, this is understood
almost as a development of contractual regulation, whose balance – we say again –
it cannot change and has to be taken as an undisputed starting point. (In this regard,
the principle of balance of onerous contracts goes further, as it intervenes to ensure
the material maintenance of equivalence or proportionality throughout the life of the
contractual relationship established, in aspects not covered by the provisions of art.
437(1)).
In turn, the hypotheses of frustration of purpose (Zweckvereitelung) are usually
symptoms of the relevance of the change of circumstances.
However, they must not be regarded as self-sufficient. The fact is some of these
situations do not constitute a change in circumstances, but, rather, twists of fate that
are liable to affect a contract in a socially typical fashion. In other words, in some
cases of frustration of purpose, within the scope of certain contracts, there is no
change of circumstances.
Following the beginning of the financial crisis, several public works projects
were compromised or postponed sine die, which produced great upheaval in the real
estate sector, namely as concerns promissory contracts concluded with the aim of
executing the said projects or based on the expectation thereof. In this regard, the
judgement issued by the Lisbon Court of Appeal on 12 February 2013
(2831/10.4TVLSB.L1-7) maintained that “[i]n a promissory contract for the pur-
chase of plot of land, the characterisation of the future surrounding area constitutes
a predictable risk and is included in ordinary fluctuations, as part of the risks inher-
ent to the contract, except if the parties expressly include exceptional provisions in
respect to that concern”.
13.4 Consequences of the Recognition of the Financial Crisis

as a Relevant Change of Circumstances
In view of the Portuguese law, the effects of an abnormal change of circumstances

are, pursuant to art. 437(1), the termination or amendment of the contract. Section 2
of the said article also reads that, following a request for termination, the other party
may oppose such request, requesting that the contract be amended instead.
The injured party shall have the initial choice of requesting either the termination
or the amendment of the contract. However, from the wording of art. 437(2), it can
be inferred that priority is given to amendment over termination, although always
in observance of the possibility that the party against which such termination has
been requested accepts such request, pursuant to their private independence
(Cordeiro 2007: 1105; P Vasconcelos 2015: 334–335). Naturally, such amendment

only makes sense when the change that has occurred did not permanently frustrate
the purposes of the contract, in which case, summo rigore, there would be a nova-
tion of the obligations (Frada 2009: 691 et seq.).
As a determining criterion for operability, art. 437(1) also provides for the
recourse to considerations of equity. What is at issue is the confirmation of the need
to cause the judge’s consideration to focus on the specific circumstances surround-
ing that contract before and after the abnormal change, in order to bring about jus-
tice for the case at hand (Teles 2008: 81 et seq. and Frada 2012: 109 et seq.).
Given its very nature, the amendment of the contract due to change of circum-
stances must be judicially requested, and the court shall decide on the validity of the
request and on the terms under which it shall take place.
Further doubts arise as to the way the termination occurs. Whereas, on the one
hand, the wording of art. 437(2) (“[s]hould termination be requested…”) appears to
point out the need for such termination to occur via the courts (M J Costa 2009:
347–348; STJ 10-Dec-1996: 96A470), on the other, in the absence of a contrary
provision, the enforcement of the general framework regarding termination seems
justified [a position strengthened by the reference made by art. 439 to art. 436 CC,
pursuant to which, termination can be effected via an out-of-court notice to the
counterparty (Telles 2002: 345–346 footnote 314; Leitão 2014: 134–135; Pires
2013: 188)]. It seems defendable, given the general framework regarding termina-
tion, to recognize the possibility of an out-of-court notice, regardless of the right to
resort to the judiciary.
As a rule, the effects of a termination due to a change of circumstances are not
retroactive. This is the solution that best safeguards contractual stability and invest-
ments by the counterparty (Ascensão 2007: 529–530; Fernandes 2001: 296–297;
Pires 2013: 188 et seq.; STJ 16-May-2002: 02B1145).21
On the other hand, we notice the absence of a legally imposed obligation to rene-
gotiate the contract.
In practical terms, in most cases, this renegotiation corresponds to a logical
choice: faced with a change of circumstances, the injured party normally begins by
(an attempt at) opening a negotiation process with the other party, aimed at adapting
the contract. Only if the (re)negotiation is refused or fails – which could lead to civil
liability due to a breach of the code of conduct according to good faith22 – do the
proceedings move to the courts.
21
However, with a different view, the judgement of the Supreme Court of Justice of 10-Oct-2013
(1387/11.5TBBCL.G1.S1), deciding that the effects of a swap contract termination would be ret-
roactive to January 2009, the date on which the interest rate began to drop at a faster pace, exceed-
ing the contractually stipulated threshold of 3.95 %.
22
It is justifiable to admit, even if praeter legem a duty to negotiate a fair way out from the effects
of the change. Accepting such a duty is easier if justice is considered to be the basis for the binding
nature of the contract, instead of will itself. The duty is then founded on art. 762(2), which, thus,
disputes the space of intervention of the courts under art. 437. These shall only issue a ruling if the
parties cannot fulfil that duty or if either party feels that the other failed to do so. There is therefore
In spite of this, the solution under Portuguese law is not perfect. Indeed, it often
happens that only after “having measured forces” in legal proceedings are the par-
ties open to the possibility of (re)negotiating, or agreeing to do so under appropriate
terms. That is why, it would be important (de lege ferenda) to enshrine under art.
437 the possibility of the judge ordering the opening of a contract (re)negotiation
period, prior to, in lieu of the parties, issuing a decision.
Such a possibility, often not even provided for in arbitration regulations, is espe-
cially useful for situations where the judge is hardly in a position to choose the best
way to adapt the contract. The terms for the adjustment of a contract very often
involve corporate and political decisions regarding corporate relationship policies,
which should only fall to the judge as a last resort, in the event the parties cannot
reach an agreement.23
Another issue concerns knowing whether once a request is made to amend a
contract in a certain way, the court is allowed to order a different amendment, which
it deems more suitable.
In principle, the court must respect the principle of party disposition.
However, if the parties’ request is only a feasible materialisation of the legal
criterion of equity, then it appears that the court can effectively order an amendment
with a differing view without offence to the aforementioned principle.24
In case the contract is adjusted or terminated there is no direct provision allowing
for the counter-party who is injured by these measures to claim any indemnification
of equity under Portuguese law.
However, the reference, in art. 437(1) CC, to the criterion of equity would serve,
as a last resort, to justify that possibility.
For instance, in the event of advance payments being made from one party to the
other, if the corresponding contractual obligations are not (or cannot) be performed,
pari passu so as to maintain the contractual relationship in a state of balance, it is
certain that, with the occurrence of an event requiring an amendment or termination
of the contract, the restoring of balance in the relationship would be appropriate. To
this aim, a relationship of liquidation is established to ensure the respect of that bal-
ance (Frada 2003: 670–671).
no theoretical obstacle to a cumulation between termination/amendment requests of the contract

under art. 437, and a claim for compensation for non-compliance of the duty to negotiate.
Naturally, one may question the existence of such duty if one admits that, after an amendment
to the contract is requested by the injured party due to a change of circumstances, the other party
may choose to terminate the contract. In any event, merely opportunistic behaviours must be
prohibited.
23
A Monteiro and Gomes (1998): 40 note that, even in the context of a legal decision, the court
must seek a solution that is consensual to the greatest extent possible and which takes into account
the interests and proposals put forth by the parties.
24
If the goal is to obtain a verdict according to equity, the principle of party disposition will have
to be understood accordingly: the idea is to obtain a verdict based on equity, even when a certain
understanding is put forth regarding what it implies. Still, this could be done differently: when the
requesting party feels that their understanding is the only one or a sine qua non condition for the
amendment, lest it chooses to prefer the alternative of terminating the contract.
The terms for the amendment of the contract do not follow any arithmetic rule
for distributing the damages among the parties; instead, it falls to the judge to deter-
mine the proportion in which the losses shall be distributed, considering the specific
circumstances of the case at issue. To such end, the court must weigh the degree of
investment made by each of the parties in the contractual arrangement and the con-
sequences arising to each of them from the modification of that arrangement, as
well as the parties’ behaviour during the performance of the contract prior to the
change of circumstances, whether causing the generated effects to worsen due to
carelessness, or mitigating those same effects, through diligent conduct (Fernandes
2001: 302).25
Incidentally, the court-ordered amendment can perfectly encompass monetary
transfers between the parties. Nothing prevents this.
In the end, what matters are the criteria under which such compensations,
intended to restore financial balance – which are not technically indemnifications –
should be arbitrated.
However, an important clarification should be made: the aforementioned “repa-
rations” are basically ways of restoring the balance of a contractual relationship that
was disturbed by a change of circumstances. In this sense, they do not constitute the
consequence that is typical of (any) civil liability.
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Table of Cases (All Available Online at www.dgsi.pt)
Coimbra Court of Appeal, 05-Nov-2013 (José Avelino Gonçalves, case no. 1167/10.5TBACB-E.
C1)
Guimarães Court of Appeal, 31-Jan-2013 (Conceição Bucho, case no. 1387/11.5TBBCL.G1)
Lisbon Court of Appeal, 14-Jun-2012 (Sérgio Almeida, case no. 187/10.4TVLSB.L2-2°)
Lisbon Court of Appeal, 12-Feb-2013 (Gouveia de Barros, case no. 2831/10.4TVLSB.L1-7)
Lisbon Court of Appeal, 19-Feb-2013 (Rijo Ferreira, case no. 1117/10.9TVLSB.L1-1)
Porto Court of Appeal, 5-Dec-2003 (Fonseca Ramos, case no. 0355837)
Supreme Court of Justice, 10-Dec-1996 (Fernandes Magalhães, case no. 96A470)
Supreme Court of Justice, 16-May-2002 (Ferreira de Almeida, case no. 02B1145)
Supreme Court of Justice, 10-Jan-2013 (Orlando Afonso, case no. 187/10.4TVLSB.L2.S1)
Supreme Court of Justice, 18-Jun-2013 (Moreira Alves, case no. 493/03.4TVLSB-A.L1.S1)
Supreme Court of Justice, 10-Oct-2013 (Granja da Fonseca, case no. 1387/11.5TBBCL.G1.S1)
Chapter 14
L’imprévision dans le Nouveau Code Civil
roumain enfanté par la crise économique
mondiale
Dumitru Dobrev and Marilena Uliescu
Abstract The study is treating the slow path of contractual unforeseeability, from
total rejection to being defined into the legislation of a country dominated by the
French legal culture. Incidental or not, this radical change of vision took place after
the effects of the world economic crisis reverberated on the South-Eastern European
economies. The new Romanian Civil Code from 2011 implements, for the first time,
the texts of the Common Frame of Reference of the Study Group on a European
Civil Code regarding the unforeseeability (art. 6:111) and we believe that the doc-
trine and jurisprudence that will develop on this text will become a valuable contri-
bution for future essays to unify the law of obligations in the European Union.
14.1 Le droit positif roumain, entre les effets de la crise

financière mondiale et le principe traditionnel romain
du droit des obligations: pacta sunt servanda
Après l’entrée en vigueur du Nouvel Code Civil roumain le 1er octobre 2011, dans
le droit positif roumain on a approché le problème de l’imprévision contractuelle
d’une manière radicalement différente que précédemment. Cela en partie à cause de
la crise économique mondiale qui s’est installée en 2008, en partie parce qu’on a eu
comme but la transposition de certains textes du Cadre Commun de Référence pub-
lié par le Groupe d’études sur un Code civil européen.
Entre 1865 et 2011, tantôt la doctrine que la pratique judiciaire ont été, à de rares
exceptions, défavorables à l’application de l’imprévision contractuelle – rebus sic
stantibus. La raison de cette approche consiste dans le fait que l’Ancien Code Civil
Roumain (1865–2011) a été en effet une copie du Code Napoléon de la 2ème moitié
du XIX-ème siècle, contenant de faibles améliorations et adaptations au contexte
D. Dobrev (*) • M. Uliescu

Legal Research Institute “Acad. Andrei Rădulescu” of Romanian Academy,
House of Romanian Academy, Bucharest, Romania
e-mail: dumitru@dobrinescudobrev.ro; muliescu@yahoo.com

244 D. Dobrev and M. Uliescu
socio-économique de la Roumanie. Comme beaucoup d’entre les universitaires et

les praticiens marquants des Principautés Unies (et plus tard du Royaume de la
Roumanie) s’étaient formés à l’école française, jusqu’ à la fin de l’entre-deux-
guerres, ils sont restés les partisans des théories de l’autonomie de la volonté et du
nominalisme monétaire,1 en répudiant ainsi la théorie de l’imprévision contractu-
elle. En suivant la célèbre décision Canal de Craponne de la Cour de Cassation
Française2: «Il n’appartient pas aux tribunaux, quelque équitable que puisse leur
paraître leur décision, de prendre en considération le temps et les circonstances
pour modifier les conventions des parties.3 », la jurisprudence (de droit privé) fran-
çaise, aussi que la jurisprudence roumaine (à l’exception de quelques causes
isolées4) ont rejeté le principe rebus sic stantibus. Il y a eu aussi des doctrinaires
d’un incontestable prestige académique,5 qui, en notant l’effet de la dévalorisation
monétaire des années 1919–1920, ont affirmé que: « cet intervention nisme dans la
matière classique des contrats a été justifié par le renversement des valeurs
économiques et par de phénomène de la dévalorisation monétaire, dont le résultat
a été le déséquilibre des prestations réciproques… Il est facile d’envisager l’effet de
la dévalorisation de la monnaie sur un contrat de rente viagère conclu avant la
dévalorisation. Si l’on demandait au débiteur de continuer l’exécution, en payant
au crédirentier l’équivalent en or de la rente, il serait ruiné. » À cause du courant
conservatoire, le Code Civil Carol II de 19406 n’a pas réglementé l’imprévision
contractuelle, bien qu’il se soit éloigné sous certains aspects des solutions « tradi-
tionnelles » du Code de 1865, en admettant une institution en quelque sorte similaire
à l’imprévision contractuelle: la lésion pour les majeurs (art. 1119). La dernière
1
Dans les travaux de plusieurs doctrinaires roumains de la période 1865–1947, la théorie de
l’imprévision était mentionnée le plus souvent pour la combattre, le principal reproche étant celui
de n’avoir pas été consacrée par le Code Civil roumain de 1865. Plus que ça, l’art. 1578 du Code
Civil de 1865 est un correspondant parfait de l’art 1895 Code Civil français (« l’obligation qui
résulte d’un prêt en argent, n’est toujours que de la somme numérique énoncée au contrat »), ce qui
consacre le principe du nominalisme monnétaire – incompatible, dans la vision des doctrinaires
roumains de l’Entre-deux-guerres, avec la théorie de l’imprévision.
2
Commune de Pélissanne c./ marquis de Galliffet, affaire dite du Canal de Craponne, Cass. Civ., 6
mars 1876, publiée sur le site : http://www.mafr.fr/IMG/pdf/canal_de_craponne.pdf consulté le 18
janvier 2014.
3
Fauvarque-Cosson and Mazeaud (2008), p. 470.
4
Voir la discussion sur la cause Lascăr Catargiu c. Banca Bercovici, le Tribunal Ilfov, La I-ère
Section Commerciale, décision du 11 mai 1920, dans – Zamşa (2006), p. 231–232 et dans le sens
contraire, voir CAS. I, Deciziunea No. 1869 din 9 Martie 1926, publicată în Pandectele Române,
1930.I.49-53 avec un note de Georgiu Plopul „En ce qui concerne la dévalorisation entre temps de
la monnaie et le changement de la valeur effective de la somme convenue en tant que prix on doit
maintenir le fait que l’imprévision, comme elle n’est pas réglementée par la loi, ne peut pas con-
stituer la base pour l’établir, car entre temps, à cause de la guerre, la valeur du terrain a changé par
rapport à la dévalorisation de la monnaie.”
5
Rosetti-Bălănescu et Băicoianu (1943), p. 44.
6
Il s’agit du Code Civil Carol II, publié le 6 septembre 1940 mais qui n’entra jamais en vigueur,
qui s’inspirait dans la section sur les obligations du projet de code des obligations et des contrats
franco-italien de l’an 1927.
14 L’imprévision dans le Nouveau Code Civil roumain enfanté par la crise… 245
tentative de reforme de la période 1947–1989, le projet de code civil de 19717 évite

pour des raisons évidentes de réglementer l’imprévision contractuelle.
Avec l’adoption du Nouveau Code Civil, le 1er octobre 2011, la vision du légis-
lateur roumain change radicalement. Par l’art. 1271 NCC, on réglemente une norme
d’application générale de l’imprévision contractuelle.
Par la Loi 71/2011 de mise en application du Nouveau Code Civil, on a finale-
ment adopté ce texte:
(1) Les parties sont tenues à exécuter leurs obligations, même si leur exécution est devenue
plus onéreuse, soit à cause de la hausse des coûts de l’exécution de sa propre obliga-
tion, soit à cause de la diminution de la contre-prestation.
(2) Quand même, si l’exécution du contrat est devenue excessivement onéreuse, à cause du
changement exceptionnel des circonstances, qui rendrait visiblement injuste le fait
d’obliger le débiteur à l’exécution de l’obligation, le tribunal peut disposer:
(a) l’adaptation du contrat, pour distribuer d’une manière équitable entre les parties
les pertes et les profits résultant du changement des circonstances;
(b) la cessation du contrat, au moment et dans les conditions qu’il établit.
(3) Les dispositions de l’alinéa 2 sont applicables seulement si:
(a) le changement des circonstances est survenu après la conclusion du contrat;
(b) le changement des circonstances, ainsi que sa durée, n’ont pas été et ne pouvaient
être prises en considération par le débiteur, raisonnablement, au moment de la
conclusion du contrat;
(c) le débiteur n’a pas assumé le risque et on n’aurait pas raisonnablement considéré
qu’il l’aurait assumé.
(d) le débiteur a essayé, dans un délai raisonnable et de bonne confiance, la négocia-
tion de l’adaptation raisonnable et équitable du contrat.
14.2 La base théorique pour la prise en considération des

effets de la crise financière mondiale dans le droit civil
roumain: le principe rebus sic stantibus
La principale source d’inspiration du Nouveau Code Civil roumain de 2011 dans la

matière des obligations est le Code Civil du Québec (C. c. Q) de 1991. Celui-ci, par
l’art. 1434, réglemente seulement le principe de la force obligatoire du contrat, en
représentant en fait une reprise des art. 1134–1135 du Code Napoléon (art. 969–970
de l’ancien Code Civil roumain), ce qui montre le caractère réticent et conservatoire
du droit québécois en ce qui concerne l’institution de l’imprévision contractuelle.
Il y a une seule différence: par l’art. 1834 C. c. Q., on admet l’imprévision con-
tractuelle seulement en matière du contrat de donation avec charge. (« La charge
qui, en raison de circonstances imprévisibles lors de l’acceptation de la donation,
devient impossible ou trop onéreuse pour le donataire, peut être modifiée ou révo-
7
Le projet de Code Civil de la Republique Socialiste de la Roumanie aurait du devenir un code qui
remplisse les mêmes exigences que Zivilgesetzbuch der D. D. R. (1975), mais il n’est jamais entré
en vigueur.
quée par le tribunal, compte tenu de la valeur de la donation, de l’intention du

donateur et des circonstances ».)8
L’équivalent de l’art. 1834 C. c. Q. est l’art.1006 du Nouveau Code Civil rou-
main, avec le contenu suivant:
Art. 1006: Le domaine d’application
Si, à cause des circonstances imprévisibles et que l’on ne pourrait imputer au bénéfici-
aire, survenues (ultérieurement) à l’acceptation de la libéralité, le remplissement des condi-
tions ou l’exécution des charges qui affecte la libéralité est devenu(e) extrêmement difficile
ou excessivement onéreux/-se pour le bénéficiaire, celui-ci peut demander la révision des
charges ou des conditions.
Art. 1007: Le solutionnement de la demande de révision
Le tribunal d’instance saisi de la demande de révision peut, tout en respectant aussi que
possible la volonté du donataire, disposer des changements quantitatifs ou qualitatifs des
conditions ou des charges qui affectent la libéralité ou les grouper ensemble avec ceux
provenant d’autres libéralités.
Le tribunal d’instance peut autoriser l’aliénation partiale ou totale de l’objet de la
libéralité, tout en établissant que le prix soit utilisé à des fins conformes à la volonté du
donataire, aussi que toute autre disposition qui maintienne autant que possible la destina-
tion poursuite par celui-ci.
Nous pensons que l’on pourrait reprocher le surnormativisme à cette réglementa-

tion, qui contient la norme d’applicabilité générale de l’art. 1271 NCC, aussi que la
norme spéciale, applicable seulement au contrat de donation avec charge (art. 1006–
1007 NCC). Nous ne voyons pas les raisons pour lesquelles la norme générale
prévue par l’art. 1271 NCC ne puisse être appliquée également à des contrats synal-
lagmatiques imparfaits, tels que les contrats de donation avec charge.
Ce furent deux auteurs français d’un grand prestige scientifique dans la
Roumanie de l’Entre-deux-guerres, Maurice Hauriou et Marcel Planiol,9 qui con-
testèrent premièrement la conception volontariste, napoléonienne, basée sur les
principes de l’autonomie de volonté et de la liberté contractuelle. Ils ont apporté
plus d’autorité scientifique aux critiques de la théorie de l’autonomie de la volo-
nté10 dans les discussions intenses que les doctrinaires roumains de l’Entre-deux-
Guerres et d’après la 2e Guerre Mondiale avaient autour de «la crise du contrat».
8
Pour des détails sur l’application très limitée de l’imprévision contractuelle dans le droit québé-
cois, voir Jobin (2004) publié sur le site www.institut-idef.org/img/doc/jobin.doc consulté le 18
janvier 2014: « hors du droit des contrats, l’imprévision peut aussi être invoquée à propos de la
charge d’un legs (art. 771 C.c.Q.) et d’une fiducie quand la poursuite de son but est rendue impos-
sible ou trop onéreuse par suite de circonstances imprévisibles (art. 1294 C.c.Q.) », et la pratique
judiciaire citée dans ce travail: Cour d’Appel, Province de Québec (Procureur général) c.
Kabakian-Kechichian, 2000 Can. LII 7772 (QC CA).
9
Voir Maurice (1986), p. 138 : « Ce qui justifie la théorie de l’imprévision dans les relations du
droit administratif doit la justifier aussi dans celles du droit privé. Cela seul et rien d’autre car il
y a unité des principes du droit » și Planiol et al. (1947), p. 168–169.
10
Ionașcu (1943), p. 737–741. Il est indubitable que l’on connaissait dans la Roumanie de l’Entre-
deux-guerres la thèse de doctorat d’Emmanuel Gounot (1912), Le principe de l’autonomie de la
volonté en droit privé. Contribution à l’étude critique de l’individualisme. Thèse, Dijon.
A. Rousseau.
Ces critiques, en premier lieu de la perspective positiviste,11 ont été biensûr ampli-
fiées par les événements à impact économique majeur de l’époque: la brusque
dépréciation monétaire des années 1918–1921 et la grande crise économique des
années 1929–1933. Après 1990 furent publiées plusieurs études approfondies
d’analyse critique de la théorie de l’autonomie de la volonté soit d’une perspective
éclectique,12 soit de la perspective des supporters de la théorie du solidarisme
contractuel,13 adeptes des visions des doctrinaires français (Yves Lequette,
Cristophe Jamin, A. S. Courdier-Cuisinier).14
En suivant cette tendance de réévaluation de la théorie de l’imprévision de la
doctrine française, des auteurs roumains plus conservatoires15 ont considéré eux
aussi que la théorie de l’imprévision devrait trouver sa place dans le droit positif
roumain, pendant que d’autres, plus téméraires,16 ont essayé de justifier dès les
années 199017 l’application de la théorie de l’imprévision même dans les conditions
de l’art. 1578 de l’ancien Code Civil Roumain (traduction de l’art. 1895 du Code
Napoléon), qui consacre le principe du nominalisme monétaire. Pendant les années
2000 plusieurs commissions de rédaction du nouveau code civil se sont succédées,
et fut publiée une monographie dédiée au problème de l’imprévision contractuelle,18
où l’on a utilisé comme arguments des travaux récents de la doctrine française19 et
des arguments de droit comparé (la soi-disant théorie de l’eccesiva onerosita,20
résultée de l’interprétation de l’art. 1467–1468 Code civil italien).
11
Des arguments de la critique de l’autonomie de la volonté d’une perspective positiviste ont été
utilisés dans les cours universitaires des années 1930–1940 par les plus importants doctrinaires
roumains de l’époque : Ionașcu (1943), p. 739, Djuvara (1933).
12
„En ce sens on doit reconnaître qu’aujourd’hui les fondements du contrat ne peuvent être circon-
scrits à la sphère exclusive d’une ou de l’autre des théories élaborées au cours du temps, qu’il
s’agisse de l’autonomie de la volonté, du positivisme juridique dans toutes ses hypostases et vari-
antes, ci-incluse la variante utilitariste, le solidarisme contractuel et le volontarisme social” affirme
le professeur Liviu Pop dans (2007), Incercare de sinteza a principalelor teorii referitoare la fun-
damentele contractului, cu privire speciala asupra teoriei autonomiei de vointa si teoriei solidar-
ismului contractual, Revista Română de drept privat, 5(5): 75–118.
13
Piperea (2011), p. 13–36.
14
Stoffel-Munck (1994).
15
Pop (2009).
16
Voir Albu (1994), p. 44–54; Albu et Man (1996), p. 20–27; Burzo (1998); Zamşa (2006).
17
Pendant les années 1990–1991, à la suite des changements majeurs en plan économique et poli-
tique, eut lieu une grande dépréciation monétaire. Pendant que le cours officiel était de 35 ROL/
USD, après la libéralisation des prix sur le marché parallèle le cours était de 180 ROL/USD. Le 30
avril 1993, le cours officiel de la Banque Nationale de la Roumanie était de 615 ROL/USD. Voir
Isărescu (2006) sur le site: http://www.ince.ro/ReflectiiIsarescu3.pdf consulté le 18 janvier 2014.
18
Zamşa (2006).
19
Flecheux (2001), p. 590.
20
Voir, en ce qui concerne la doctrine italienne: Boselli (1952) et pour la pratique judiciaire: Corte
Suprema di Cassazione, Sezione Terza Civile, Sentenza n. 12235 del 25 maggio 2007 sur le site
internet: http://www.cortedicassazione.it/ consulté le 18 janvier 2014.
Nous pensons qu’un rôle important pour l’adoption de l’imprévision comme

solution législative en Roumanie eut le fait que le dernier projet de réforme du droit
des obligations français,21 aussi que le projet de Cadre Commun de Référence pub-
lié par le Groupe d’Étude pour un Code Civil Européen présidé par le professeur
Christian von Bar en 2008 (art. 6: 111) ont inclus des textes proposant des régle-
mentations de l’imprévision contractuelle.
Tout en commentant le projet français, le prof. J. Ghestin affirme: « Moralement
souhaitable, la révision ou l’adaptation du contrat devient économiquement indis-
pensable. L’utilité sociale commande qu’un déséquilibre excessif des prestations,
constitutifs d’une trop grande injustice, soit désormais pris en considération par le
droit positif ».22
Comme le Groupe d’Étude pour un Code Civil Européen est finalement abouti à
une version plus conservatoire que l’antérieure, celle-ci a été transposée telle quelle
dans le Nouveau Code Civil roumain. Par conséquent, le texte de l’art. 1271 este en
fait une traduction du point III-1:110 du Projet de Cadre Commun de référence.
Cette nouvelle révision du Projet de Cadre Commun de Référence demande
que la révision judiciaire du contrat réunisse simultanément quatre conditions,
assez difficilement de prouver en pratique et qui nécessitent un comportement
irréprochable du débiteur de l’obligation devenue extrêmement onéreuse, aussi
qu’une diligence peu commune des commerçants dans la phase de négociation
précontractuelle.
Certains auteurs considèrent qu’une autre source pour l’inclusion de la théorie de
l’imprévision contractuelle dans le NCc seraient les Principes applicables aux con-
trats commerciaux internationaux codifiés par l’Institut International pour
l’unification du droit privé en l’an 1994 (les Principes UNIDROIT).23 Expression de
la lex mercatoria, les Principes UNIDROIT traitent de l’imprévision contractuelle
aux articles 6.2.1-6.2.3.24
Même après le début de la crise mondiale (dont les effets furent ressentis en
Roumanie à commencer de l’an 2008), la pratique judiciaire de Roumanie a été
néanmoins assez réticente envers cette tendance de la doctrine, tantôt en ce qui
21
Projet de réforme du droit des obligations. Texte du projet de la Chancellerie.
22
Ghestin (2009), p. 30.
23
Voir Tița-Nicolescu (2012), 95 (11).
24
Les principes UNIDROIT sont disponibles a cette adresse internet: http://www.unidroit.org/eng-
lish/principles/contracts/main.htm, consulté le 18 janvier 2014.
concerne le droit privé,25 tantôt en ce qui concerne les contrats administratifs,26 en

restant fidèle au principe pacta sunt servanda. Même dans les causes où les instances
n’ont pas exclu de plano l’application de la théorie de l’imprévision pour manque
de réglementation (ce qui est la motivation traditionnelle des instances roumaines),
on a considéré qu’en cause n’étaient pas remplies à la fois les conditions27 pour que
cette limitation de la force obligatoire de contrats28 soit effective.
25
Voir la pratique judiciaire relevante:
- la décision arbitrale (pas encore publiée) no. 171/ 15.07.2010, dossier no. 330/ 2009, La Cour
d’Arbitrage International aupres la Chambre de Commerce de la Roumanie, définitive, qui statue
le caractère « exceptionnel » de l’imprévisions et qui ne pourrait invoquer, dans l’absence d’une
clause de hardship (que les partie n’ont pas prevue dans un contrat de louage à 10 ans) ;
- l’arrêt no 194/ 24.01.2013 de la Haute Cour de Cassation et de justice, la 2-ème Section
Civile, par laquelle on maintient la motivation de l’appel de la Cour d’Appel de Bucarest de l’arrêt
civil no 31 du 24 janvier 2012 : « Une des conditions essentielles de la théorie de l’imprévision est
que la circonstance qui a déterminé le déséquilibre contractuel soit apparue entre le moment de la
conclusion du contrat et le moment ou l’exécution des obligations assumées par les parties devait
se faire, condition qui dans ce cas-ci n’est pas remplie. Les parties ont conclu l’avant-contrat de
vente-achat l’11 février 2008 et on prévu que la conclusion du contrat de vente-achat aura lieu le
15 mai 2008, et la situation imprévisible invoquée par la requérante-défendeuse (la chute du
marché immobilier et l’arrêt des financements immobiliers) est ultérieure, respectivement après 15
septembre 2008.
26
Voir la Haute Cour de Cassation et de Justice, la Section de contentieux administratif et fiscal,
décision no 5266 du 25 novembre 2010, avec un commentaire explicatif, par juge dr. Bogasiu,
Gabriela, publiée dans 2012, Revista Română de Jurisprudenţă, 21 (3) disponible sur le site web
www.idrept.ro et la décision no 713/CA/ du 20.10.2010 de la Cour d’Appel de Constanța publié sur
la page internet du Ministère de la Justice: http://portal.just.ro/36/Lists/Jurisprudenta/DispForm.
aspx?ID=656 consultés le 18 janvier 2014.
27
Voir la Haute Cour de Cassation et de Justice, la Section de contentieux administratif et fiscal,
décision no 5266 du 25 novembre 2010, avec un commentaire explicatif, par juge dr. Bogasiu,
Gabriela, publiée dans 2012, Revista Română de Jurisprudenţă, 21(3): « En principe, le conces-
sionnaire supporte les risques de l’exploitation, en ce sens qu’il assume les risques de
l’exploitation, dans la mesure que les bénéfices qui résulteraient d’une baisse des coûts
d’exploitation lui profitent. Le principe de l’équilibre financier ne fait que tempérer l’autre prin-
cipe, celui de l’exploitation du service public ou du bien concessionné au risque et à la respon-
sabilité du concessionnaire, sans l’enlever dans sa substance, parce que, au contraire, la
prééminence-même de l’intérêt public dans les rapports administratifs serait niée.
Par conséquent, si on n’a pas prévu expressément dans le contrat la possibilité de la diminution
de la redevance ou son ajustement par rapport aux résultats économiques obtenus, le principe de
l’équilibre financier ne peut être invoqué en tant que motif légal en ce sens d’autant moins pour la
restitution des sommes déjà payées à titre de prix de la concession, en l’absence des preuves con-
cernant l’impossibilité inévitable de continuer l’activité d’intérêt public.
Celle-ci est aussi la conclusion de la décision prononcée par le conseil d’État de la France
mentionné dans les conclusions de l’intimée-requérante (l’affaire du gaz de Bordeaux, le 30 mars
1916), dans laquelle on a accepté la révision du contrat en faveur du concessionnaire, non pas dans
le but de diminuer les pertes ou de couvrir le manque du profit, mais pour pouvoir assurer la con-
tinuité du service public d’éclairage de la ville, devenu trop couteux dans les conditions du triple-
ment du prix du charbon pendant les années 1915–1916, durant la Première Guerre Mondiale. »
28
Les auteurs Pop, Liviu, Popa, Ionuț, Vidu, Stelian Ioan dans (2012), Tratat elementar de drept
civil. Obligațiile, București, Universul Juridic, utilise en tant que figure le style le terme de lésion
a posteriori.
14.3 La clause de hardship
La clause de hardship n’était pas considérée valide auparavant dans les contrats
conclus sous la loi roumaine, mais seulement dans les contrats synallagmatiques, à
exécution successive et avec un élément d’extranéité dans lesquels les parties, par
une clause compromissoire valide, choisissaient un autre droit matériel applicable
au contrat que le droit roumain. Par conséquent, chez la Cour d’Arbitrage
Commercial International auprès de la Chambre de Commerce et Industrie de la
Roumanie il y a eu quelques causes dans lesquelles on a considéré valide la clause
de hardship. Ceux-ci étaient des contrats internationaux complexes de fourniture de
matières primaires des pays du Tiers Mode, ou de transport international intermodal
ou maritime soumis à la loi anglaise. À ce moment-ci, tous les doctrinaires sont
d’accord qu’une clause de hardship est licite et on peut l’insérer dans tout contrat
interne rédigé sous le Nouveau Code civil. Certains auteurs recommandent quand
même l’insertion de cette clause seulement dans les contrats commutatifs (pas dans
les contrats aléatoires) à exécution successive et qui s’étendent sur un grand nombre
d’années (des contrats de louage ou de fermage à 10–20 ans) qui incluent, autant
que possible, un algorithme de calcul qui permette de redimensionner l’obligation
devenue excessivement onéreuse.
14.4 Des palliatifs législatifs au problème du déséquilibre

économique qui affecte le contrat
La seule modalité « traditionnelle » par laquelle on a imposé un moratoire dans les

contrats excessivement onéreux, suite d’un déséquilibre monétaire imprévisible et
de grande ampleur, a été l’intervention du législateur. Comme pendant les années
1920 les gouvernements avaient encouragé les crédits pour les petits fermiers et les
petites industries, pour réduire l’impact social de la Grande Crise économique de
1929–1933 on a adopté la Loi de la conversion des dettes agricoles et urbaines29 no
33/7.04.1934, par laquelle on a établi un moratoire de 15 ans pour le rembourse-
ment des crédits bancaires.
Récemment, par une initiative des quelques parlementaires du pouvoir et de
l’opposition, on a déposé dans la Chambre des Députés un projet de loi pour
l’atermoiement de l’exécution forcée des personnes qui on fait des crédits en francs
suisses. Le projet de loi réduit le domaine du moratoire seulement aux personnes
29
La Loi no. 33/1934, publiée dans le Journal Officiel Roumain no. 83/07. 04. 1934, art. 4 : « Les
dettes des débiteurs prévus a l’art. 1 se diminuent par 50 % conformément a l’art 3 de la loi. Les
dettes ainsi réduites seront payées en 34 fractions trimestrielles, qui vont comprendre un taux de 3
% par an et qui seront payées chaque 15 mai et 15 novembre de chaque année, l’échéance de la
première fraction étant le 15 novembre 1934. Chacune des premieres deux fractions représenteront
2,5 %, et chacune des deux suivantes, 3 % de la créance réduite conformement a l’alinéa 1. Les
autres 30 fractions seront égales et comprendront tout le reste de la dette.
physiques qui on fait des crédits pour acheter des immeubles à destination de loge-
ment mais nous ne croyons pas que celui-ci sera adopté parce qu’il ne peut pas avoir
le support du gouvernement qui a un accord stand-by avec le Fonds Monétaire
International et la Banque Mondiale.30
Un autre acte normatif qui a été modifié à cause de la crise est la Loi de
l’insolvabilité no 85/ 2006. On introduisit l’art. 931 avec le contenu suivant:
Les obligations résultant d’un avant contrat vente immobilière à date certaine, antérieure a
l’ouverture de la procédure, dans lequel le promettant-vendeur entre en procédure, seront
exécutées par l’administrateur judiciaire/ le syndique de faillite à la demande du promettant-
acheteur, si:
– le prix convenu dans le contrat été payé intégralement ou peut être payé, et le bien se
trouve dans la possession du prometteur-acheteur;
– le prix n’est pas inférieur à la valeur de marché du bien;
– le bien n’a pas une importance déterminante pour la réussite d’un plan de
redressement.
Ce texte a été introduit par le Parlement par la Loi no 277/2009 parce que plus-
ieurs promoteurs immobiliers de logements collectifs faisaient faillite et on avait
abouti à la situation suivante: les banques avaient crédité les promoteurs et elles
avaient des garanties réelles (hypothèque sur l’immeuble terrain et sur le bien
futur – le bâtiment) et les prometteurs-acheteurs des appartements du logement col-
lectif (d’habitude, des personnes physiques) avaient payé intégralement ou partiale-
ment, dans la plupart de cas par des crédits bancaires, les prix de ceux-ci, mais en
étant seulement des titulaires d’un droit de créance. Comme il était évident que dans
le cas d’une confrontation légale entre les deux catégories de créditeurs des promo-
teurs immobiliers – les banques et les prometteurs acheteurs – les premières auraient
été avantagées, le législateurs est intervenu et a permis que ces contrats de vente
achat soient conclus à l’opposition du créditeur garanti et la levée de l’hypothèque.
La pratique judiciaire qui a suivi cette mesure, en ce qui concerne la levée de
l’hypothèque, n’est pas unitaire.31
30
Voir le projet législatif sur le site de la Chambre des Députés : http://www.cdep.ro/proiecte/
bp/2013/800/70/7/pl877.pdf.
31
La Cour d’Appel de Timișoara, la Section Commerciale, décision civile no. 72 du 18 janvier
2011: « Il n’y a pas de disposition légale qui permette à l’instance d’accorder la préférence à un
créancier chirographaire au détriment d’un créancier garanti; il est complètement injuste qu’un tel
créancier, qui a pris de mesures suffisantes pour garantir le crédit financier accordé à un débiteur
et qui fait ultérieurement déclaration d’insolvabilité, soit transformé en créancier non garanti, et
ceux qui n’ont pas constitué de garantie lorsqu’ils ont accordé des acomptes a la société faillie en
échange de la construction et de la vente de logements aboutissent a voir réalisées intégralement
pu en grande partie leurs créances. »
14.5 Conclusions
Sans doute que le législateur roumain a essayé, en suivant les textes les plus récents
de la doctrine européenne, de créer un mécanisme judiciaire apte à offrir des solu-
tions pour deux des plus grandes provocations que l’on peut rencontrer dans le
monde contemporain globalisé: le déséquilibre monétaire ou une crise globale du
marché de l’énergie. Il reste que le juge roumain ne recoure que dans des situations
exceptionnelles à cette véritable boîte de Pandore qui est l’adaptation judiciaire de
l’équilibre contractuel dans un pays où il n’y a pas de tradition ou de mentalité du
milieu d’affaires préparées pour une telle approche. Raison pour laquelle un opti-
misme modéré nous fait réitérer l’affirmation du prof. Pierre-Gabriel Jobin de
l’Université McGill de Montréal: Comme on le sait, tel était le cas en France durant
la période de l’adoption du Code Napoléon, car on était déterminé tout spéciale-
ment à mettre un terme aux interventions judiciaires dans les affaires privées: «Que
Dieu nous garde de l’équité des parlements»32
References
Albu, I. 1994. Probleme actuale privind reevaluarea judiciară a creanțelor, indexarea convențională
a obligațiilor pecuniare și indexarea dobânzilor dans. Dreptul 49(1): 44–54.
Albu, I., and A. Man. 1996. Utilizarea terminologiei juridice latine cu referire specială la adagiile
pacta sunt servanda și rebus sic stantibus. Dreptul 74(2): 20–27.
Boselli, A. 1952. La risoluzione del contratto per eccessiva onerosità. Torino: Unione tipografico-
editrice Torinese.
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de Drept.
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2009, n°spéc., n°31: 30.
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Jobin, P.G. 2004. Deux lacunes de la justice contractuelle dans le code civil au Québec, publié sur
le site www.institut-idef.org/img/doc/jobin.doc consulté le 18 janvier 2014.
32
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justice.html consulté le 18 janvier 2014.
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Centre de philosophie politique et juridique.
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Afacerilor 91(3): 13–36.
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Hamangiu.
Chapter 15
The Russian Federation Legislation
on the Effects of Financial Crises
on the Binding Force of Contracts:
Renegotiation, Rescission or Revision
Nataliya Georgievna Doronina and Natalia Gennadievna Semilyutina
Abstract This article describes the provisions of the Russian legislation with
respect to the financial crisis situation. The authors analyze how the crisis situations
affect the provisions of the contracts. The provisions of the Russian Civil Code are
subject of the analysis in the present article. The subject of the research was the situ-
ations which happened on the Russian financial market within recent 20 years.
Although the crisis situation is often understood as general market destabilization
the situations varied much as well as the legal ways of overcoming the situation.
According to the authors one should see the difference between the effects the
financial crisis on the contracts concluded between market participants (B to B rela-
tionship) and between market participant and a customer (B to C relationship).
Proving this idea authors compare the situation on the market in 1998th and in
2014–2015th.
15.1 The Principle of “Pacta Sunt Servanda” in the Cases

Connected with the Application of the Articles 450–451
of the Civil Code (A Substantial Change
of Circumstances)
Before the economic reforms of 1990s there has been no crisis situations in the
planned economy; the crisis started to happen after the reforms and turn to the mar-
ket economy. After the basic elements of the financial market had been created, that
is:
N.G. Doronina (*) • N.G. Semilyutina

Private International Law Department, Institute of Legislation and Comparative Law,
Moskow, Russian Federation
e-mail: gis.doronina@yandex.ru; nata@izak.ru

256 N.G. Doronina and N.G. Semilyutina
– the financial instruments, to be bought and sold on the market;

– the infrastructure of the market (that is a set of organizations engaged in the
organization of the market: depositories, clearing & settlement, trading
system);
– market participants, who sell and buy the financial instruments on the market.
Staring form the beginning of the “market period” Russia faced several periods
of tension on the market. The situations that could be characterized as crisis were
connected with the periods of global destabilization on the market. Such situations
happened in 1997–1998 years, 2007–2008, 2014-up till present moment.
Financial crisis 1997–1998 was financial crisis that affected mostly the profes-
sional financial participants, the crisis of 2007–2008 was global and did not affected
internal Russian. The crisis that started in the end of 2014 is far from its resolution
and it affects the consumers of financial services – the debtors on the secured liens.
The comparison between the situations in 1998 and 2014 affords the see various
approaches to the crisis resolution although based on the provisions of the Civil
Code of the Russian Federation (Civil Code, CC RF). Generally the Russian Civil
Code stands on the position “pacta sunt servanda”. According to the article 309 of
the Civil Code “obligations must be performed a proper manner in accordance with
the terms of obligations, requirements of the statute, other legal acts, and in the
absence of such terms and requirements – in accordance with the customs of com-
merce or other usually made requirements”. According to article 310 of the Civil
Code “unilateral refusal to perform an obligation and unilateral change in its terms
is not allowed with the exception of cases provided by a statute. Unilateral refusal
to perform an obligation, connected with the conduct by the parties of entrepreneur-
ial activity and unilateral change in the terms of such an obligation is allowed also
in cases provided by contract unless otherwise follows from a statute or the nature
of the obligation”.
At the same time one of the basic principles of the Russian law of obligation is
the principle of the fault of the debtor. According to the article 401 (1) “a person
who has not performed an obligation or who has performed it in an improper man-
ner shall bear liability in case of fault (intent or negligence) except for instances
when a statute or contract provides other basis of liability”. A person is recognized
as not at fault, if with the degree of care and caution that was required of him by the
nature of the obligation and the conditions of commerce, he has taken all measures
for the proper performance of the obligation.
Absence of fault must be proved by the person who has violated an obligation
(article 401 (2)). Generally, this principle often is named as the “presumption of the
debtors fault”. But the Civil Code also provides for the creditor’s fault which
decreases the amount of the debtor’s liability (article 404 of the Civil Code).
The described above general principle is applied with respect to entrepreneurial
activities in a special way. According to article 401 (3) “unless otherwise provided
by a statute or the contract, a person who has not performed an obligation or has
performed an obligation in an improper manner in the conduct of entrepreneurial
activity shall bear liability unless he proves that proper performance became
15 The Russian Federation Legislation on the Effects of Financial Crises… 257
impossible as the result of f(1orce majeure, i.e. extraordinary circumstances

unavoidable under the given conditions. Such circumstances do not include, in par-
ticular, violation of obligations by contact partners of the debtor, absence on the
market of goods necessary for performance, nor the debtor’s lack of the necessary
monetary assets”.
At the same time, according to the article 451 (1) “a substantial change of cir-
cumstances from which the parties proceeded in the conclusion of the contract is a
basis for its change or rescission unless otherwise is provided by the contract or
follows from its nature. A change of circumstances shall be considered substantial
when they have changed to the extent that, if the parties could have reasonably
foreseen this, the contract would not have been concluded by them at all or would
have been concluded on significantly different terms.” According to the article 450
(2) of the Civil Code it is the competence of the court to determine upon demand of
one of the parties whether the change and rescission of a contract are possible. But
according to Russian experts “there is no practice on the application of the article
451 of the Civil Code”.1 The same point of view was expressed at the annual VIII
Russian civil law conference the devoted to the professor Serguey Bratus memories
that was held in Moscow in October 2013. Professor A. Komarov from the Russian
Academy of the Foreign Trade mentioned that at the time of drafting of the Civil
Code the experts wished to provide for the preservation of the contractual relations
between the parties despite of the changes of the economic situation. “We hoped
that in case of the dramatic changes of the economic situation the modified contract
would help the parties to go on with the contract and that would assist the parties to
overcome the difficulties of the crisis. But the courts preferred to uphold the variant
of rescinding of the contract.” – professor A. Komarov pointed out. The authors of
the textbook mentioned above tried to explain the court’s position through the
unwillingness of the courts to impose on the parties any of the additional obligations
that is to renegotiate. If the parties could and wished to modify the contract they
would have done this before bringing an action to the court. So for the courts it is
preferable to rescind the contract rather to invent something for the parties which
are ready to rescind the contract themselves.2
This idea may be supported by the practice of the Russian courts. First of all it
should be mentioned that there are not so many cases connected with the application
of the articles 450–451 of the Civil Code. In the decision of the Presidium of the
Supreme Arbitrazh Court3 of the Russian Federation of April 13th 2010 N1074/10
1
See the basic classical textbook of the Russian law of contracts by Braginskiy M, Vitryanskiy V
(2002): Брагинский М.И., Витрянский В.В. Договорное право. Книга первая. Общие
положения, М: «Статут», с. 447.
2
Braginskiy and Vitryanskiy (2002): Брагинский М.И., Витрянский В.В. Договорное право.
Книга первая. Общие положения, М: «Статут», с. 447.
3
One of the peculiarities of the Russian legal system is the existence of the system of the “Arbitrazh
Courts” which in fact originated from Arbitration courts. We have already described the origins of
the Russian state arbitration courts in our National report we directed to professor G.Bermann
from the Columbia University who is the moderator of the subject “Review and recognition of
foreign arbitral awards – The application of the New York Convention by national courts. If you
(this is the final decision of the Court of the highest instance) the Presidium refused
to admit the inflation and general increase of prices as the change of circumstances
in the sense of the article 451 of the Civil Code and refused to satisfy the claim of
the leasor to change the conditions of the contract and to increase the price in the
contract for the lease of premises.
The practice demonstrates that the parties seldom turn to the courts applying for
the change of the contract due to the change of circumstances on the basis of the
articles 450–451 of the Civil Code. The most demonstrative situation happened
with the crisis of August 1998.
Unlike the most of the Western countries the Russian experience in dealing with
the financial crises was connected with the exact date August 17th, 1998. The other
events connected with financial crises like US CDS default of late October 2008,
Lehman Brothers bankruptcy, recent events in Greece and Cyprus were not as
impressive for Russia as August 17th, 1998 was. On Monday morning, of August
17th, 1998 the Russian government and Central Bank of Russian Federation (CBR)
issued a Declaration by means of which:
1. a 90-days moratorium on repayment of foreign commercial loans by commercial
banks was declared;
2. ruble was effectively devaluated; it was declared that ruble would be traded in a
band of 6–9.5 rubles per dollar; (the value of ruble immediately depreciated far
outside this brand);
3. the internal debt was defaulted by means of suspension of trade in government
securities (GKO/OFZ4) and conversion of those securities into new securities
with deferred maturities; GKO/OFZ securities immediately became illiquid and
uncertain in value.
The Government and CDR Declaration had a serious effect on the Russian econ-
omy. The situation was really unexpected even by professionals as on the eve of the
mentioned day the President Eltsin officially in his interview to the mass media
declared for the stability of the national currency. The Declaration affected the most
of the citizens and entrepreneurs as it caused serious depreciation of national cur-
rency. That caused destabilization of payment systems. Some of the foreign banks
refused to admit VISA, Mastercard, EuroPay cards issued by Russian banks. There
were certain difficulties for the importers and for those who had domestic loans
nominated in foreign currencies.5
Still the most serious consequences the Declaration had for the financial market
and professional participants. Besides the currency depreciation the Declaration
are interested we can resend it for you. With respect to this topic we think its enough to know that
Russian Arbitrazh Court is an analogue of the economic court. At present time the reform of the
court system in Russia is declared, it provides for the uniting of the arbutrazh or economic courts
with the courts of the general jurisdiction. – N.D. & N.S.
4
GKO – government short-term bonds; OFZ – bonds of federal loan – medium term securities.
5
See e.g. Сергеев В.И. «Обвал» финансового рынка и обстоятельства непреодолимой силы
// Законодательство, 1998, №11, с. 6–12.
frosted the most popular financial instrument – GKO. In practice that meant that the
sufficient part of the banks, securities companies assets were blocked.
The problem became very serious for the foreign participants of the GKO mar-
ket. The foreign participants had the right to participate on the GKO market on
certain conditions. According to these conditions the foreign participant had to buy
a currency ruble/dollar forward contract on the interbank (OTC) market. Most of
the forward contracts were index forward contracts (that is the contracts for the
price difference). As from the point of view of the western experts the depreciation
of the Russian currency was the most probable and predictable (the unpredictable
was the order and the speed of the depreciation) the bought the forwards of the right
direction unlike most of the Russian banks. So after the August 17th 1998 a huge
amount of the Russian banks appeared to be in a very difficult situation: on one hand
a certain amount of assets used to be frosted in the GKOs; on the other hand most
of them were in a “wrong” position with the forward contracts.
In this situation some of the market participants instead of applying for the appli-
cation of the article 451 of the Civil code, preferred to deny the enforceability of the
index forward contracts applying to the article 1062 of the Civil Code. The article
1062 provides for the unenforceability of the gambling transactions. According to
article 1062 “claims of citizens and legal persons connected with the organization
of games and wagers or with the participation therein shall not be subject to judicial
protection”. The practice of the courts and commercial arbitration (not the State
Arbitrazh courts) turned out to be very contradictory as well as the doctrine.6 The
matter was brought to the Constitutional Court. In the Regulation of December 16,
2002 N 282-O the Court determined that it was up to the competent courts to deter-
mine whether the index-forward contract was gambling or not. The situation
remained undetermined until by means of amending articles 1062–1063 the excuse
was made for the contracts with the professional participants of the market.
15.2 The Practice of Referring to Force Majeure

Circumstances and the 1998 Financial Crises
on the Financial Market
The Civil Code naturally does not have special provisions with respect to financial
crises at all. It stands on the general principles:
– “clausula rebus sic statibus” (as it is provided it the Article 309 and 310 of the
Civil Code, quoted above);
– the faulted liability with the exception for those who are engaged in the entrepre-
neurial activities (see Article 401 of the Civil Code);
6
See Брагинский М.И., Витрянский В.В. Договорное право. Книга пятая. Том 2, М: «Статут»,
2006, с. 585–604.
– persons who are engaged in the entrepreneurial activities would be liable “unless
he proves that proper performance became impossible as the result of force
majeure” (see Article 401 (3) of the Civil Code).
The ideas of “frustration of the contract”, the doctrine of “Wegfall der
Geschäftsgrundlage” (which are more or less alike to the force majeure (at least
with respect to practical consequences)) are not reflected expressly within the provi-
sions of the Civil Code. At the same time, the Civil Code provides for the impossi-
bility of performance. According to article 416 (1) “an obligation is terminated by
impossibility of performance if the impossibility of performance if the impossibility
was by the circumstances for which none of the parties is liable”. According to
article 416 (2) “in case of impossibility of performance by a debtor of an obligation
caused by actions for which the creditor was at fault, the latter does not have the
right to demand return of what was performed under the obligation”. According to
the Russian basic course by professors M. I. Braginskiy and V. V. Vitryanskiy of
the Law of Contracts, “the impossibility of performance that is the impossibility for
the debtor to perform the obligations which occurred without his fault, according to
the general role of the law will terminate the obligation in case, if it was caused by
a circumstance for which none of the parties is liable”.7
The only possibility to take into consideration crisis circumstances (to persuade
the courts to take into consideration the crisis aspects) was the force-majeure refer-
ence. According to article 401 (3) “unless otherwise provided by a statute or the
contract, a person who has not performed an obligation or has performed an obliga-
tion in an improper manner in the conduct of entrepreneurial activity shall bear
liability unless he proves that proper performance became impossible as the result
of force majeure, i.e., extraordinary circumstances unavoidable under the given
conditions. Such circumstances do not include, in particular, violation of obliga-
tions by contract partners of the debtor, absence on the market of goods necessary
for the performance, nor the debtor’s lack of the necessary monetary assets”.
Article 417 provides for the termination of an obligation on the basis of an act of
a state body. According to this article “if as the result of the issuance of an act of a
state body the performance of an obligation becomes impossible in full or in part,
the obligation is terminated in full or for the respective part. Parties that have suf-
fered losses as the result of this have the right to claim compensation for them in
accordance with articles 13 and 16 of the present Code”.
With respect to the situation of the August 17th,1998 the mentioned above
Declaration turned out to be Act of State. With respect to the state bonds the state chose
the way of the change of the contract of public debt, providing for the “novation” of
the obligations, deriving from the GKOs with respect to legal persons. The state ful-
filled its obligations completely with respect to physical persons – GKO-holders.
Irrespective the GKO market situation, one should analyze the practice of the
Russian Courts with respect to the application (or refusal to apply) the force majeure
7
Брагинский М.И., Витрянский В.В. Договорное право. Книга Первая. Общие положения,
Издание 2-ое, М:Статут, 2005, с. 763–764.
clause. The Moscow International Commercial Arbitration Court (ICAC)8 is the

oldest commercial arbitration court competent to resolve “the disputes resulting
from contractual and other civil law relationships arising in the course of foreign
trade and other forms of international economic relations, provided that the place of
business of at least one of the parties is situated abroad”.9 ICAC was created in 1932
for resolution of the disputes between the Soviet Foreign-Trade Organizations
(vneshnetorgovye obyedineniya –VTO) and foreign firms. The disputes which were
resolved by ICAC had market economy origin (unlike the other domestic dispute
connected with the planned economy where the force majeure hardly ever hap-
pened). The ICAC experience in this connection seems to be important and
interesting.
According to the contract concluded by the parties in 1993 the defendant was to
deliver the goods to the claimant. The contract provided for the 100 % prepayment
and the claimant fulfilled his obligations completely. The defendant refused to
deliver the goods referring to the significant increase of prices in the local market,
the defendant was ready to fulfill the delivery after additional payments were done.
ICAC refused to admit the increase of tarifs and workers’ wages in the local market
as a force majeure and carried out the award requesting the defendant to fulfill his
obligations completely.
The practice of referring to force majeure circumstances does not seem to occur
often. The party referring to it must prove that the event had unpredictable and
could not be foreseen by the party, the event should have inevitable character.
Usually in order to prove that the circumstances preventing the performance accord-
ing to the contract the interested party has to turn to special commission at the
Chamber of commerce for the certificate confirming the presence force majeure
circumstances impeding the performance.
With respect to the 1998 crises the Chamber of commerce made an announce-
ment that the August 17th, 1998 Declaration by the Russian Government and the
Central Bank of Russian Federation (CBR) can not be considered as a force majeure
circumstance. So the financial crises itself (at least with respect to the situation of
August 17, 1998) was never construed as a force majeure. But the financial market
participants faced the most serious consequences. As it was mentioned above, the
seriousness of the consequences was connected not only with the devaluation of
national currency but also with the default of the internal debt. At that time GKO
and OFZ represented the most liquid and the most secured type of the securities.
Many banks hold and financial institutions hold their reserves in GKOs. The orga-
nizations of market infrastructure also were very dependent on GKO/OFZ.
Moscow Interbank Currency Exchange (MICEX) was one of the largest private
financial institutions and organization of the financial market infrastructure. MICEX
8
The full name of ICAC in Russian: Международный коммерческий арбитражный суд при
Торгово-промышленной палате Российской Федерации – МКАС при ТПП РФ; the informa-
tion on ICAC both in Russian and English one may see on the site http://www.tpprf-mkac.ru/.
9
See Article 1 (2) of the Law of the Russian Federation “On International Commercial Arbitration”
of July 7th, 1993.
was the exchange for trading government securities (GKO/OFZ) and foreign
currencies. It was formed in 1991 by the group of the largest Russian bank. In 1998
it organized trading and clearing services. In 1996 MICEX started derivatives
trading: foreign currency futures (dollar/ruble) were traded in MICEX.
The emergency measures taken by the government had direct effect on MICEX
derivatives market. First of all, the devaluation of national currencies directly con-
cerned derivatives trading and first of all dollar/ruble futures. Secondly, as MICEX
fulfilled a function of clearing organization doing centralized clearing on the deriva-
tives market it faced the default of a significant number of market participants. The
most serious was the fact that MICEX risk management system accepted GKO/
OFZ as collateral securing the derivatives transactions. Thirdly, “GKO/OFZ securi-
ties and foreign financing constituted principal sources of liquidity for the Russian
commercial banking system. Russian commercial banks held a very significant por-
tion of their assets in these securities. As a result of the default on GKO/OFZ securi-
ties, the Russian baking system became illiquid, several large banks failed, and
bank customers generally could not access their funds on deposit”.10
Responding to financial collapse the MICEX Directorate suspended trades on
the derivatives market on August 17, 1998. MICEX considered alternatives of: (i)
settling all positions in futures contracts at the prices recorded at the close of trading
on Friday, August 14, 1998; or (ii) resuming trading in futures contracts, provided
that the market participants posted the additional margin deposits and guarantee
deposits.
On August 21st, 1998 the MICEX Board upheld the decisions of MICEX
Directorate and on August 26th, 1998 required all clearing members to increase
their margin deposits before August 31st, 1998. As most of the clearing members
had to overcome financial difficulties (most of them kept the financial assets in
GKO or OFZ which had been defaulted), the requirement of the MICEX Board was
not fulfilled. As a result MICEX Board on September 2nd, 1998 in accordance with
the articles 81 and 84 of the Rules of the MICEX Derivatives Division ordered clos-
ing out of all derivatives position at the closing prices of August 14th, 1998. There
was an attempt to bring an action doubting the decisions of the MICEX Board in
court but it failed.
15.3 The Risks and the Conditions of the Contracts

Between the Parties in Business: The Possibility
of Intervention into Business Relations
As we may see from the 1998 experience the Russian market participants are in the
field of the unpredictability of the government actions and steps undertaken. In our
opinion this unpredictability of the state is the main factor that negatively affected
the investment climate in Russia.
10
Cagliotti M and Burt J (1998), MICEX and the Russian Financial Crisis in: The Harriman
Review, Special Issue, December 1998, pp. 14–18.
Still we should notice that somehow the situation changes for the better. In this
situation the main recommendation for the market participants is to work out thor-
oughly the conditions of the contract. The provisions of the MICEX rules and accu-
rate step-by-step fulfillment of their provisions, which were aimed at the
risk – diversification among market participants. These provisions helped MICEX
and MICEX market participants to come over the difficulties of August 17, 1998
without any interference of the state.
With respect to the mentioned above conditions in our opinion all of them should
be described within the contract taking into consideration the risks and the condi-
tions of the parties business. It should be also taken into consideration that the
western model provisions should be “translated” into Russian which means that the
contract should be adopted for the realities of the Russian law.
Much depends on what is understood as “an intervention” on the frustrated con-
tract. As we understand from our national experience, the state prefers to issue a
general rule which does not interfere in the parties’ relations. It is advisable for the
parties to provide for the possible crisis situation within their contract, so that it was
possible to find a solution in the difficult situation.
As it was mentioned above Article 451 provides for the termination or renegotia-
tion of the contract as it would be determined in the court’s decision. The courts
usually prefer to rescind the contract.
It should be clarified whose faulted actions caused the injuries. In the beginning
we have described the general principles of the parties responsibility if it concerns
the parties. The general principles would be applied with respect to the state actions.
But it is necessary to clarify the situation out of which the injuries occur.
The situation that happened in the Russian financial market and particularly on
MICEX derivatives market helps to understand the special regulation, that has pri-
ority before general rules of the civil law.
15.4 The Situation of 2015: Ruble Devaluation and Its Effect

on the Contracts of Banks with Customers
The situation that started to develop on the market quite recently the result of huge
Russian ruble depreciation and secured currency loans granted to consumers. The
amount of currency loans does not exceed 3.5 % of total amount of secured loans on
the market. On one hand because of the ruble depreciation the total sum of the debt
increased sufficiently being nominated in national currency and the general ten-
dency is in favor further increase of the debt (due to the further depreciation of
ruble). On the other hand the general economic tendency leads to the decrease of the
amount of incomes for the most of the debtors. The decrease of total amount of
incomes affects general creditworthiness of the debtors.
The mentioned tendencies challenge the market: because of the decrease of total
incomes of households the offer of premises increases as the mount of bids
decreases. The situation threatens to the market in genera as in case of multiple
defaults it becomes problematic for the creditors to compensate the losses by means
of by-out.
The Central Bank recommended commercial banks holding secured loans in for-
eign currencies to turn to restructurization of the loans. By March 1st the Central
Bank and the Government should work out the conditions of currency debt restruc-
turisation. At present moment the conditions of the mentioned restructurizations
have not been announced yet, but it is obvious that they should be based on the Civil
Code principles and in some way would support the consumer as the weakest party.
The recent initiative of a Group of Deputies of the State Duma was in the general
trend: the suggested that the insolvent debtors in the foreign currency secured loans
should not be deprived of their households. Among the measures which are under
discussions are:
– transferring of a foreign currency denominated loan into a national currency
(ruble) denominated contract
– restructuring the sum of the debt in accordance with the fixed rate, which is in the
middle between the initial currency rate on the date of the loan contract and the
present market rate;
– postponement the term of the contract.
The recommendations seem to be likely provide for a set of measure or a combi-
nation of some of the mentioned above measures. The expected recommendations
issued by the Government and the Central Bank would include figures and param-
eters, that credit institutions are recommended to use taking into consideration the
prudential purposes.
Chapter 16
The Effects of the Global Financial Crisis
on the Binding Force of Contracts: A Focus
on Disputes over Structured Notes in Taiwan
Chang-hsien Tsai
Abstract Taiwan, whose financial market is closely linked to the international mar-
ket, was seriously affected by the Global Financial Crisis. Among the affected retail
investors, those who invested in financial products such as structured notes might
have been unaware of the real risk these products posed. Investors left holding
worthless products in the wake of the 2008 crash were quick to seek legal redress
for their losses, but these disputes were difficult to address by properly using the
civil remedies then available in Taiwan. Few of the possible causes of actions listed
in the Taiwanese Civil Code (“CC”) or in other special laws were well adapted to
address disputes over structured notes. The most applicable remedy available in the
then legislation might be Article 227-2 of the CC, which governs the rule of changed
circumstances, but it was referred to only rarely in these disputes. In order to put an
end to this type of structured-note controversy, the Financial Consumer Protect Act
(“FCPA”) was passed in 2011. Nevertheless, there is room for the FCPA to be
improved and refined.
16.1 Introduction
In 2008, an economic crisis struck most of the world’s financial markets (Wang
2011b, 1945). During the Global Financial Crisis (“GFC”), markets were devas-
tated by bank over-lending, and consequently several international financial compa-
nies were unable to sustain their business, sparking serious controversy around the
international financial market.
Taiwan, whose financial market is closely linked to the international market, was
also seriously affected by this disaster. Among affected retail investors, those who
invested in financial products such as structured notes might have been unaware of
C.-h. Tsai (*)

Institute of Law for Science and Technology, National Tsing Hua University,
Hsinchu, Taiwan
e-mail: chstsai@mx.nthu.edu.tw

266 C.-h. Tsai
the real risk they ran in doing so.1 This has resulted in a multitude of disputes that
proved difficult to properly address through the civil remedies then available in
Taiwan. Although authorities found temporary solutions for the problem, the need
for a special act exclusively protecting financial consumers was evident, finally
leading to the passing of the Financial Consumer Protection Act (“FCPA”) in 2011.
An overview of the problem with structured notes in Taiwan will be presented in
this chapter as follows: Sect. 16.2 will deal with the question of whether the rule of
changed circumstances is applicable in circumstances such as financial crises; in
Sect. 16.3, the development of legislation following the GFC will be explained; and
Sect. 16.4 will conclude this chapter with a brief assessment of the FCPA’s
prospects.
16.2 The Principle of Pacta Sunt Servenda v. Clausula Rebus

Sic Stantibus
16.2.1 A Summary of Theories
If the effects of the GFC on contracts are taken into consideration in Taiwan, the
theoretical basis appears to lie in the rule of a fundamental change of circumstances
(clausula rebus sic stantibus), or the idea of frustration of contracts.
The first issue affected by the GFC that will be explored herein is the “rule of
changed circumstances,” which concerns sudden events that affect the foundation
of transactions. In the GFC context, the question is whether those structured note
contracts can be terminated or rescinded, as some retail investors claim, because in
some instances the GFC totally changed the circumstances at the moment a contract
was signed.
In terms of law, the rule of changed circumstances is an exception to the princi-
ple of pacta sunt servenda (“the promise must be kept”). The rule of changed cir-
cumstances developed under both common law and civil law; in practice, it is often
applied to dramatic changes resulting from wars (Hou 2003, 108).
In common law countries, there are two main categories of rules governing situ-
ations when an event happens after a contract is formed. The first category consists
of contracts that are impractical or impossible to enforce; the second category cov-
ers frustration of purposes (Lo 2013a, 70). The idea of changed circumstances was
created for and applied in German civil law cases (Peng 1984, 161, 175, 179, 190);
it also exists in the Taiwanese Civil Code (“CC”), although with somewhat different
wording. In Sect. 16.2.2, the relevant articles in the CC will be introduced.
1
Structured notes are hybrid financial products combining derivatives and debts securities, which
link to other investment products in the market (see Chen 2011a, 211).
16 The Effects of the Global Financial Crisis on the Binding Force of Contracts… 267
16.2.2 Principles in the Taiwanese Civil Code
Some provisions of the CC share certain characteristics of the rule of changed cir-
cumstances. Even before the codification of the Taiwanese version of this rule,
similar concepts were present in other laws and court decisions. As for the CC, there
are two main groups of articles addressing contract enforcement issues under
changed circumstances: the first group concerns events that render a contract
impractical or impossible to enforce, while the second group addresses other
changed circumstances after a contract is formed.
16.2.2.1 Impracticability or Impossibility
The first group of articles consists of Article (Art.) 2252 and Art. 2663 of the
CC. These cover objective impracticability or impossibility of enforcement result-
ing from events that cannot be attributed to any of the parties to a contract. In other
words, the consequences of objective impracticability or impossibility cannot be
imputed to the debtors. According to these articles, when an event occurs after a
contract is formed that cannot be attributed to any of the parties to the said contract,
the question of distribution of risks must then be considered. Art. 225 releases the
debtor from the obligation of performance if the change cannot be attributed to him
or her. Art. 266 releases the creditor from the obligation of counter-prestation when
the event cannot be attributed to either party (Chen 2011b, 148).
2
Art. 225 stipulates:
(1) The debtor will be released from his obligation to perform if the performance becomes
impossible by reason of a circumstance to which he is not imputed. (2) If the debtor is
entitled to claim compensation for the injury against a third party in consequence of the
impossibility of the performance under the preceding paragraph, the creditor may claim
against the debtor for the transfer of the claim for the injury, or for the delivery of the com-
pensation he has received.
Please note that all English translations of legal texts in this chapter are official translations
from the “Law and Regulation Database of the Republic of China” maintained by the Ministry of
Justice in Taiwan.
3
Art. 266 stipulates:
(1) If none of the parties is imputed to the impossibility of one party’s performance, the
other party shall be released from his obligation to perform the counter-prestation. (2) If the
impossibility is only partial, the counter-prestation shall be reduced proportionately. In the
case provided in the preceding paragraph, if the counter-prestation has been wholly or par-
tially performed, it may be claimed for the reimbursement in accordance with the provi-
sions concerning Unjust Enrichment.
268 C.-h. Tsai
16.2.2.2 The Rule of Changed Circumstances: Background
Art. 227-24 of the CC can be said to be equivalent to the rule of changed circum-
stances, although its legal or theoretical foundation is somewhat different from
common law rules. The CC generally follows the approach of civil law and is pat-
terned mainly after the German Civil Code. Prior to the codification of Art. 227-2,
there were even similar developmental backgrounds between Taiwan’s and
Germany’s laws regarding changed circumstances. The need to address this issue
was highlighted by the problems with enforcing contracts during and after a time of
war,5 when local market conditions tend to be extremely unstable (Hou 2003, 108).
Although the rule of changed circumstances was not directly imported from
Western legal systems, Taiwanese courts have long relied on the principle of good
faith to resolve contract disputes due to changed circumstances, which shares the
same basis as its development in other civil law countries (Lin 2000, 61). In Taiwan,
the idea of changed circumstances was usually cited by courts to deal with dramatic
changes in price level indexes and the change of currency after the Second World
War (“WWII”) (Hou 2003, 108–110).6 The first attempt to codify the rule of
changed circumstances was Art. 397 of the Code of Civil Procedure (“CCP”),7
which is worded similarly to the current Art. 227-2 of the CC. The former addition-
ally emphasizes that the event is not the result of the actions of either party (Lin
2000, 66–67). This article was initially placed in the CCP rather than the CC in 1968
simply for the sake of expediency.8 Before the rule was codified in the CC, courts
kept trying to apply similar concepts to this rule based on previous court decisions,
such as the interpretation of the principle of good faith and Art. 397 of the CCP (Lo
2013b, 69).
4
The full text of and conditions that apply to this article will be discussed in Sect. 16.2.2.3.
5
The current ROC government moved to Taiwan after the end of WWII due to the defeat by the
Chinese Communist Party in a civil war. Therefore, cases relating to contract enforcement during
a time of social change were often brought to the court during and after the war (see Hou 2003,
108).
6
Taiwan’s currency changed once after the end of WWII in an effort to control inflation. Most of
the court cases related to this event dealt with the value difference between the New Taiwan Dollar
and the original Taiwan Dollar.
7
Art. 397 used to stipulate:
(1) The court shall, ex officio, make just determination and give judgment to increase,
decrease, or make payment, or change other effect of any juristic act which has its effect
become unjust after it is done due to change of circumstances upon cause not attributable to
the parties concerned and beyond their expectation. (2) The above provision shall apply
mutatis mutandis to legal relationship originated from non-juristic act.
Please note that this article was later modified in February 2003, and now no longer covers
changed circumstances in terms of substantive law (as opposed to procedural law).
8
The amendment was made in February 1968, when there was no official plan to amend the CC,
so that the rule of changed circumstances was placed under the CCP as a temporary solution (see
Lin 2000, 66).
Art. 227-2, an official legal basis for the rule of changed circumstances, was
finally added in 1999 when the CC was amended (Lo 2013b, 69). This is now the
legal foundation for applying the rule of changed circumstances under the CC, as
will be discussed in detail in the next section.
16.2.2.3 The Rule of Changed Circumstances: The Conditions Necessary

to Accept an Exceptional Outcome
Art. 227-2 of the CC states:

(1) If there is change of circumstances which is not predictable then after the constitution of
the contract, and if the performance of the original obligation arising therefrom will
become obviously unfair, the party may apply to the court for increasing or reducing his
payment, or altering the original obligation. (2) The provision in the preceding paragraph
shall apply mutatis mutandis to the obligation not arising from the contract.
However, even after the enactment of this article, the requirements for applying
the rule of changed circumstances did not become fully clear, and continued to be
supplemented by legal theories and court decisions. Legal scholarship and practice
evolved a set of elements to justify the existence of changed circumstances:
– If there is a fundamental change of circumstances, these circumstances must be
closely related to the establishment of the contract, and should be an objective
event that cannot be attributed to any of the parties. According to the wording of
the article, the change need not be sudden or extreme; however, commentators
have noted that, referring back to German Law, the change must be substantial
(Lo 2013b, 70).
– The event must happen after the contract is formed but before the obligations
detailed therein are performed (Lo 2013b, 70).
– The event must have been unforeseeable at the time the contract was formed,
which is an important element. This rule applies even if it was unforeseeable
only to the claimant. However, commentators and court decisions have recog-
nized that, at least in such cases as a sudden increase of the general price level—
even if there are contract terms specifying the price level—the rule of changed
circumstances still applies, as the scope of the increase is obviously beyond
one’s expectations (Lo 2013b, 70–71).
– The change of circumstances should not result from any fault of the contracting
party applying the rule. This requirement can be found in the legislative com-
ments on Art. 227-2.9 It is worth discussing further the question of whether, aside
from force majeure events, the rule applies to those events due to the fault of a
third party. Some commentators believe it still applies when there are no other
possible remedies (Lo 2013b, 71–72).
– The change of circumstances has led to an obviously unfair situation: If the
result is so unjust that no one can expect the affected party to continue to abide
9
See the Legislative Comment on Art. 227-2.
270 C.-h. Tsai
by the terms of the contract, then the contract cannot be considered binding (Lo
2013b, 72).
With those elements in the CC, the question is therefore whether the events of the
GFC qualify as exceptional circumstances. If so, we must then discuss whether this
rule has legal applications that retail investors can take advantage of.
16.2.2.4 Exceptional Circumstances that Justify an Intervention

Due to Changed Circumstances Under the Taiwanese Civil Code
As stated above, concepts similar to the rule of changed circumstances had already
been invoked by courts before the rule was codified in the CC. These court deci-
sions made before codification are important references for interpreting the current
Art. 227-2 (Lo 2013b, 74). In the context of financial crises, the core issues requir-
ing interpretation seem to be the standard of “obviously unfair” and foreseeability.
The standard of “obviously unfair” The wording of Art. 227-2 itself provides no
clue as to how to decide what constitutes “obviously unfair.” There are two cases
that may serve as particularly clear demonstrations of the problem: both share a
similar factual background, but came to different conclusions.
In 2009 the Taiwan Supreme Court ruled10 that if the contractor is not economi-
cally disadvantaged, and if there is a price-index-adjustment term included in the
contract, the rise of the price index is insufficient justification for invoking the rule
of changed circumstances. Nonetheless, the Supreme Court also held11 that when a
significant rise in price would lead to unfair results if the contract remained in force,
then the rule of changed circumstances could be invoked and the contract terms
adjusted. In this case the Supreme Court applied the rule without additional require-
ments such as weighing the economic strength of the contracting parties. Although
the two cases seem to contradict one another, the concept of “substantive fairness”
is common to both.
Foreseeability An unforeseeable event is another condition that might necessitate
invoking the rule of changed circumstances. One example of this can be found in
another 2009 case, where the court, in a previous decision, determined that the
worsening of marine conditions was not unforeseeable because the contractor knew
that the construction site was in a sub-tropical marine area and the weather was
unstable; therefore she could not invoke the rule of changed circumstances (Lo
2013b, 75).
Further examples of the standard of determining foreseeability can be found in
previous cases addressing price level changes. In these typical cases, the courts
determined that if the price level term has been included in a contract, the rule of
10
Zuigao Fayuan [Sup. Ct.], Civil Division, Tai-Shang No. 2470 (2009) (Taiwan).
11
Zuigao Fayuan [Sup. Ct.], Civil Division, Tai-Shang No. 2299 (2009) (Taiwan).
changed circumstances is generally not applicable (Cheng 2010, 11–12)12 unless the
result of a change is unconscionable.13 Based on these court decisions, the interpre-
tation of terms in a contract involving financial products such as structured notes
might be an important key to the issue of whether the investment or credit risk
thereof is unforeseen.
However, even if the rule of changed circumstances can be applied in controver-
sies resulting from the GFC, whether the legal effects of this rule meet the needs of
retail investors is another question, one that will be explored in the next section.
16.2.2.5 The Legal Consequences of the Rule of Changed Circumstances
According to Art. 227-2, the legal consequences of applying the rule of changed
circumstances appear to be clear, including “increasing or reducing his payment”
and “altering the original obligation.”
Nevertheless, theoretically there are two tiers of possible legal consequences of
applying the rule of changed circumstances. The primary consequence is to allow
the court to adjust the contract terms while maintaining its validity. If the adjust-
ment cannot offer a fair result, secondary consequences come into play (i.e., termi-
nation or rescission of a contract), which must be decided by the court (Hou 2003,
114).
According to past court practices, civil courts in Taiwan decided contract adjust-
ment in cases involving a change of a currency value (Hou 2003, 115). In these
cases, the Supreme Court stated that the advantages and disadvantages faced by
both parties because of the change of circumstances should be taken into consider-
ation in order to reach a fair adjustment (Hou 2003, 115).14 Other possible means of
adjusting contracts include delaying the deadline, changing the type of payments, or
invoking Art. 265 of the CC (Hou 2003, 114).15
Only if the adjustment fails to achieve a fair result, as commentators assert, may
the court decide to terminate or rescind the contract, and award damages if neces-
sary, based on the principle of good faith (Lin 1963, 20). This two-tier approach is
12
See also the following similar court decisions: Zuigao Fayuan [Sup. Ct.], Civil Division, Tai-
Shang No. 760 (1995) (Taiwan); Gaodeng Fayuan [High Ct.], Civil Division, Jian-Shang No. 126
(2007) (Taiwan); Gaodeng Fayuan [High Ct.], Civil Division, Jian-Shang No. 99 (2007) (Taiwan);
Gaodeng Fayuan [High Ct.], Civil Division, Jian-Shang-Geng (Yi) No. 32 (2009); Gaodeng
Fayuan [High Ct.], Civil Division, Jian-Shang No. 59 (2009) (Taiwan).
13
See Gaodeng Fayuan [High Ct.], Civil Division, Jian-Shang No. 53 (2008) (Taiwan).
14
See also the following court decisions supporting this ruling: Zuigao Fayuan [Sup. Ct.], Civil
Division, Tai-Shang No. 1771 (1958) (Taiwan); Zuigao Fayuan [Sup. Ct.], Civil Division, Tai-
Shang No. 2630 (1997) (Taiwan).
15
Art. 265 states:
A person who is bound to perform his part first may, if after the constitution of the contract
the property of the other party have obviously decreased whereby the counter-prestation
might become difficult to be performed, refuse to perform his part, until the other party has
performed his part or furnished security for such performance.
272 C.-h. Tsai
meant to maintain the validity of a contract as long as possible, as, in accordance

with the principles of the CC, the court should not interfere in private transactions
unless absolutely necessary (Lo 2013b, 75).
However, secondary consequences have yet to be applied in court decisions, so
opinion has it that only “adjustment”—the primary consequence—is allowed by the
CC (Hou 2003, 114). As one commentator reckons, the only choice provided in Art.
227-2 and the former text of Art. 397 in the CCP is “adjustment,” and it is possible
that Taiwanese courts have never tried to broaden this interpretation to cover the
secondary consequences of the rule (Hou 2003, 115).
It is thus possible to make a temporary argument regarding application of the
rule of changed circumstances to a dispute over structured notes: According to the
current text of Art. 227-2, it is important to assess the interpretation of an invest-
ment or credit risk if the rule of changed circumstances can be applied in the context
of the GFC. Even if the rule does apply, the wording of Art. 227-2 and previous
court decisions imply that the court may only adjust the payment. It is also neces-
sary for retail investors who took part in transactions involving structured notes to
apply to the court in order to benefit from this remedy (Huang 2005, 22–23).
The typical issues involved in disputes over structured notes in Taiwan and the
legal tools available to address these disputes will be introduced in the next
section.
16.3 The Effects of the Global Financial Crisis

on the Binding Force of Contracts in Taiwan:
Renegotiation, Rescission, or Revision?
16.3.1 The Effects of the Global Financial Crisis

on the Binding Force of Contracts in Taiwan: Lessons
from Disputes Over Structured Notes
16.3.1.1 Background
Financial institutions in Taiwan began promoting structured notes around 2001;

before this time, investors had to purchase these financial products through foreign
banks (Lin 2012, 82). In 2003, the Ministry of Finance (“MOF”) announced regula-
tions on disclosing information related to investment-linked insurance policies in
order to protect retail investors. In September 2008, Lehman Brothers Holdings Inc.
(“Lehman Bros.”) went bankrupt, and all transactions involving structured notes
issued or brokered by Lehman Bros. were suspended during the period of bank-
ruptcy protection (Lin 2009, 45). This event set off a wave of lawsuits brought
against banks; retail investors argued that the banksʼ sales representatives had not
fully disclosed the risks inherent in purchasing structured notes (Lin 2009, 46).
16.3.1.2 Typical Controversies
At the core of the controversies outlined above is what is known as a “Designated

Money Trust” (“DMT”), a kind of contract used by banks to sell structured notes to
retail investors (Li 2009, 29). Under DMT contracts, investors (clients) retain the
right to decide how to use their money, while banks are required to offer financial
products that entail a risk level appropriate for each client and to disclose invest-
ment risks (Li 2009, 29).
In cases where a dispute over structured notes enters into renegotiation proce-
dures or the parties of a DMT contract go to court, the most common type of dis-
putes was the charge that the client lacked information for one reason or another—that
the retail investor lacked the necessary knowledge to understand the financial prod-
ucts he or she was offered, that the bank did not fully disclose the necessary infor-
mation, or that the information was not given at a proper time (Ku 2010, 119).
Another frequent cause of disputes was whether banks (or their salespersons) had
adequately discharged their fiduciary duties (Ku 2010, 120). Ku (2010) compiled a
list of the most common types of disputes (Table 16.1).
16.3.1.3 Temporary Solutions
Before the FCPA was passed, there was no professional authority to handle these
kinds of disputes over financial products. The provisional authority in charge was
the Bank Bureau of the Financial Supervisory Commission (“FSC”), tasked with
resolving cases in which the disputed value was larger than one million New Taiwan
Dollars (“NTD”). Other cases involving objects under one million NTD were
Table 16.1 The most common types of structured-note disputes (Ku 2010, 119)
Types Facts Legal claims made by investors
1. Retail investors lacked necessary knowledge; The contract was obviously unfair
some of the investment documents were filled and should be invalid
out or signed by bank salespersons
2. Banks did not go through the “Know Your 1. Applying Art. 184 of the CC:
Customer” (“KYC”) process, or did not Banks violated some statutory
recommend suitable products according provisions enacted for the protection
to the risk-bearing levels of respective clients of others, so that it is an act of tort
2. Banks did not fulfill their duty of
care as prudent administrators
3. Banks promoted structured notes as a kind of The contract was formed due to fraud
fixed-income deposits or a mistake
4. Banks did not disclose that the contract would The contract was based on fraud
include a service fee
5. A full set of documents was not given to retail The contract was not yet constituted
investors
6. Banks did not provide an alert to price or risk Banks did not fulfill their fiduciary
changes at a proper time duties
274 C.-h. Tsai
handled by either the Securities and Futures Investors Protection Center (“SFIPC”)
if a Lehman Bros. product was involved, or the Bankers Association of the ROC
(“BAROC”) if non-Lehman Bros. structured notes were involved. All of the above
cases that passed procedural review were finally assigned to the Appraisal
Committee of Financial Consumer Disputes under the BAROC (“Appraisal
Committee”) for substantive review (Wang 2011b, 1980). The temporary mecha-
nism is summarized in Fig. 16.1 below.
However, some cases involving structured notes did not fit the legal definition of
“consumer disputes” in the Consumer Protection Act (“CPA”), and therefore do not
fall under the BAROC’s jurisdiction. In response to public pressure, the BAROC
solved the problem by amending its own administrative rules to include any cases
referred to it via the appropriate authorities (Wang 2011b, 1980).
As of April 1, 2011, 25,214 cases had been reviewed under this provisional sys-
tem; however, only the first 100 decisions made by the Appraisal Committee were
open to the public for reference at that time (Chen 2011a, 211). Therefore, the gen-
eral public was not in a position to acquire information about the provisional
Alternative Dispute Resolution (“ADR”) procedures mentioned above. Furthermore,
adjudications made by the Appraisal Committee had no binding force on individual
complainants when neither party had agreed to the settlement terms; decisions were
only binding on banks under certain conditions (Chen 2011a, 212; Li 2009, 37). At
the same time, in order to maintain its neutral position, the Bank Bureau itself could
not make any decision on an individual case unless the bank in question had been
proved to have violated the law. Thus, in this regard, the BAROC was the actual
authority operating the temporary ADR mechanism (Kuo 2012, 52–61).
Yes Apply to the

Is the Disputed Value
over 1 Million NTD? Bank Bureau
Under the FSC
No
Does the Dispute Involve Yes Apply to the

Lehman Bros Structured Note Products? SFIPC
No
Apply to the
BAROC
Fig. 16.1 The Pre-FCPA temporary dispute settlement mechanism (Lin 2009, 46)
16.3.1.4 Obstacles to Applying Available Remedies
Even if a temporary mechanism cobbled together in a hurry was available, the

uncertainty over what constitutes a valid cause of action was still problematic.
Applicable remedies were still scattered among various statutory provisions, and
therefore it was difficult for retail investors to identify sufficient and effective rem-
edies (Tsai 2013, 14–17). Theoretically, causes of action for retail investors to seek
damages or to adjust a contract term involving structured notes might include the
following articles (Tsai 2013, 6–7; see also Chen et al. 2012, 57–78):
– Art. 88 and Art. 89 in the CC relate to mistakes in signing contracts. Art. 92 and
Art. 93 provide remedies if a contract is fraudulent or was signed under duress;
however, it is difficult for retail investors to prove a bank’s mens rea, and these
articles provide a limited amount of time for individuals to seek legal redress.
– According to Art. 153 in the CC, an investor may claim that the two parties have
not reached an agreement on necessary elements in the contract, and thus the
contract has not been finalized.
– Many investors relied on the Trust Law (Art. 22 and Art. 23) and the Trust
Enterprise Act (Art. 22, Art. 23, and Art. 35), or the liability rules governing a
contract of mandate in the CC (Art. 535 and Art. 544); however, proof is still
needed as to what constitutes a bank’s fiduciary duties in selling financial prod-
ucts, or whether a bank salesperson’s breach of company internal rules consti-
tutes a breach of fiduciary duties as provided under the above laws.
– It is also difficult to apply tort law (e.g., Art. 84, Art. 188 and Paragraph 1 of Art.
197 in the CC) because it is difficult to prove a bank’s mens rea.
– Art. 247-116 in the CC controls the content of standard form contracts. Retail
investors may claim that the standard form contract was so unfair or so much
against good faith that it should be declared unenforceable; however, the court
may not agree if the complainant signed the contract, as signing personally is
usually taken to mean that one agrees to the contract terms.
– Retail investors claiming that their contracts were not finalized may encounter
difficulties when trying to apply Art. 245-1 of the CC. This article covers pre-
contractual liabilities in cases where a contract is not finalized,17 and requires
16
Art. 247-1 of the CC states:
If a contract has been constituted according to the provisions which were prepared by one
of the parties for contracts of the same kind, the agreements which include the following
agreements and are obviously unfair under that circumstance are void. (a) To release or to
reduce the responsibility of the party who prepared the entries of the contract. (b) To
increase the responsibility of the other party. (c) To make the other party waive his right or
to restrict the exercise of his right. (d) Other matters gravely disadvantageous to the other
party.
17
Art. 245-1 of the CC provides:
(1) Even though the contract is not constituted, one of the parties is responsible for the
injury caused to the other party who without his own negligence believed in the constitution
of the contract when he, in order to prepare or negotiate for the contract, has done either of
276 C.-h. Tsai
retail investors to prove that financial institutions intentionally concealed or lied

about important information before entering into the contract. Nonetheless, once
an investor has entered into an agreement with a bank, it is not easy to invoke the
article.
– The court has rarely agreed that structured notes are “securities” as defined in the
Securities and Exchange Act; however, neither has the court agreed that the
Securities Investment Trust and Consulting Act applies, as a transaction that per
se would be deemed a DMT contract is not a security.
– Under the current definition in the CPA, structured notes are not “products” and
it is therefore impossible for retail investors to invoke the CPA in structured-
note-related disputes.
– As discussed in Sect. 16.2.2, Art. 227-2 might theoretically be taken into account
to adjust the terms of DMT contracts in structured note cases, but this type of
claim is rarely made. This may be due to the strict conditions required by law,
which might deter retail investors from applying the rule of changed circum-
stances in actual cases.
It is obvious that there were no sufficient and effective regulations targeting so
unusual a financial product as the structured note. In order to prevent similar prob-
lems in the future, the FCPA finally went into effect in 2011.
16.3.2 A New Horizon: The Enactment of the Financial

Consumer Protection Act
16.3.2.1 Introduction of the Financial Consumer Protection Act
When the FCPA was passed in June 2011, the Taiwanese legislature required that
the FSC, as the competent authority of this Act, establish an additional professional
authority to handle financial consumer disputes (Lin 2012, 34).
This new Act covers the following subjects:
– The financial services enterprise (Art. 3).18 This definition includes the following
entities: “banking enterprises, securities enterprises, futures enterprises,
the following: (a) Hidden in bad faith or dishonestly explained the gravely relevant matter
of the contract when the other party inquired. (b) Intentionally or gross negligently spilt out
the other party’s secret known or held by himself which the other party has explicitly
expressed to be kept in secret. (c) Any other matter obviously against good faith. (2) The
claim for the injury in the preceding paragraph shall be extinguished by prescription if not
exercised within 2 years.
18
Art. 3 stipulates:
(1) The term “financial services enterprise” as used in this Act includes banking enterprises,
securities enterprises, futures enterprises, insurance enterprises, electronic stored value card
enterprises, and enterprises in other financial services as may be publicly announced by the
competent authority. (2) The terms “banking enterprises,” “securities enterprises,” “futures
insurance enterprises, electronic stored value card enterprises, and enterprises in

other financial services as may be publicly announced by the competent author-
ity” (Chiu et al. 2012, 24).
– Financial consumers. Art. 419 of the FCPA defines financial consumers as “par-
ties that receive financial products or services provided by a financial services
enterprise,” but excludes consumers with a certain level of income or with pro-
fessional knowledge of investment; therefore, investment companies apparently
cannot be consumers under the FCPA (Chiu et al. 2012, 25).
– Financial consumer disputes. The FCPA only copes with CC disputes over finan-
cial products or services (Art. 5) (Chiu et al. 2012, 26). However, these disputes
also include disagreements that arise during contracting or advertising, and other
similar disputes between parties that relate to financial products or services (Chiu
et al. 2012, 26).
Nevertheless, commentators indicated that this legislation merely provided
another new channel for seeking relief; it is not a catchall to cover every issue.
Obviously, it is not an ultimate solution for every future dispute similar to those
over structured notes (Lin 2011, 27).
16.3.2.2 New Causes of Action
The FCPA imposes new obligations on financial service enterprises, particularly

regarding new causes of action to be applied in financial consumer disputes. These
new obligations include: additional requirements in advertising (Art. 8)20; KYC and
enterprises,” and “insurance enterprises” as used in the preceding paragraph shall take the
definitions set out in Article 2, paragraph 3 of the Organic Act Governing the Establishment
of the Financial Supervisory Commission; provided, however, that securities exchanges,
over-the-counter securities exchanges, central securities depositories, futures exchanges,
and enterprises in other financial services as may be publicly announced by the competent
authority are not included within the meaning of these terms. (3) The term “electronic
stored value card enterprises” as used in paragraph 1 means issuers as defined in Article 3,
subparagraph 2 of the Act Governing Issuance of Electronic Stored Value Cards.
19
Art. 4 provides:
(1) The term “financial consumer” as used in this Act means parties that receive financial
products or services provided by a financial services enterprise; provided, however, that it
does not include the following: 1. qualified institutional investors; or 2. natural persons or
juristic persons with a prescribed level of financial capacity or professional expertise. (2)
The meanings of the terms ‘qualified institutional investors’ and ‘prescribed level of finan-
cial capacity or professional expertise’ as used in the preceding paragraph shall be pre-
scribed by the competent authority.
20
Art. 8 states:
(1) A financial services enterprise, in publishing or broadcasting advertisements or carrying
out solicitation or promotional activities, shall not engage in falsehood, deception, conceal-
ment, or other conduct sufficient to mislead another party, and shall verify the truthfulness
of the content of its advertisements. The obligation it bears to financial consumers shall not
278 C.-h. Tsai
suitability requirements (Art. 9)21; duties of full explanation and disclosure

(Paragraphs 1 and 3 of Art. 10)22; and exercising the due care of a good administra-
tor and fiduciary duty (Paragraph 3 of Art. 7).23 The FCPA also specifies that obliga-
tions may not be limited or exempted by prior agreement (Art. 6). The above articles
emphasize financial institutions’ obligations to be “honest,” to fully disclose infor-
mation (especially information about risks related to financial products), and to sell
suitable products to financial customers (who are usually far less informed about the
products they are buying than financial institutions).
To summarize, the FCPA supplies two new causes of action for financial con-
sumers (Wang 2011a): (1) Liabilities for false advertising; and (2) Breach of duties
for implementing KYC and the suitability test, as well as the duties of explanation
and disclosure. The liability standard is strict liability, as Art. 11 of the FCPA
be less than that indicated in the content of the aforementioned advertisements or in the
materials or explanations provided to financial consumers in the aforementioned solicita-
tion or promotional activities. (2) Regulations governing the methods, content, and other
requirements pertaining to the advertisements and solicitation or promotional activities of
the preceding paragraph shall be prescribed by the competent authority. (3) A financial
services enterprise shall not take advantage of education and awareness programs to intro-
duce individual financial products or services.
21
Art. 9 stipulates:
(1) Before a financial services enterprise enters into a contract with a financial consumer for
the provision of financial products or services, it shall fully understand the information
pertaining to the financial consumer in order to ascertain the suitability of those products or
services to the financial consumer. (2) Regulations governing what “information pertaining
to the financial consumer” must be fully understood and what matters relating to “suitabil-
ity” must be taken into account, as mentioned in the preceding paragraph, and other matters
requiring compliance, shall be prescribed by the competent authority.
22
Art. 10 provides:
(1) Before a financial services enterprise enters into a contract with a financial consumer for
the provision of financial products or services, it shall fully explain the important aspects of
the financial products or services, and of the contract, to the financial consumer, and shall
also fully disclose the associated risks…. (3) The explanations and disclosures that the
financial services enterprise provides to the financial consumer, as mentioned in paragraph
1, shall be in text or use another method that is fully understandable to the financial con-
sumer; and the content thereof shall include, without limitation, aspects of material signifi-
cance to the interests of the financial consumer, such as transaction costs, and possible gains
and risks. Regulations governing related requirements shall be prescribed by the competent
authority.
23
Paragraph 3 of Art. 7 states:
A financial services enterprise, in providing financial products or services, shall exercise the
due care of a good administrator; for any financial product or service it provides that has the
nature of a trust or mandate arrangement, the financial services enterprise shall also bear
such fiduciary duty as may be required by applicable legal provisions or contractual
stipulations.
requires that a financial services enterprise bear the liability for paying damages to
financial consumers if any of the above duties are breached (Wang 2011b, 1986).24
Placing strict liability on financial services enterprises takes into account their
contracting power and the information asymmetry existing between the parties to
transactions involving financial services or products. Hence, even if a financial ser-
vices provider merely plays the role of brokers, it cannot be exempted from liability
by claiming that it had insufficient knowledge of the product it provided (Wang
2011b, 1986).
These new causes of action may prove to be more direct and powerful weapons
for retail investors to use against financial institutions than the remedies that existed
before the FCPA came into effect. Furthermore, the FCPA provides other proce-
dural rules to resolve disputes over this kind of financial transaction, as will be
discussed in the next section.
16.3.2.3 The Establishment of the Financial Ombudsman Institution
Another important contribution of the FCPA is the establishment of an independent

authority that exclusively handles financial controversies: the Financial Ombudsman
Institution (“FOI”). The FOI is an answer to previous difficulties where financial
consumer disputes were widely dispersed in various courts but not decided under a
common guideline, and the pace of courts’ decision-making further compounded
the confusion (Tsai 2013, 16).
The FOI is a semi-official foundation funded by both regulated private enter-
prises and government agencies (Lin 2011, 32). The decision-making organ of dis-
pute resolution is the ombudsman committee (Art. 17 and Art. 18), which is
composed of 9–25 members. These members include scholars, experts, and other
professionals with sufficient practical knowledge. Because the FOI is merely a
semi-official foundation, the FCPA vests the committee with the power to ask finan-
cial services enterprises to provide necessary documents (Art. 20).
However, retail investors still have to make a complaint to those financial ser-
vices enterprises before they are allowed to apply to the ombudsman committee
(Art. 24) (Lin 2011, 32).25 The process of dispute resolution generally goes as fol-
lows: after a retail investor brings a complaint to the financial services enterprises
concerned, the investor may then file the case with the FOI. The FOI will first
review the case to determine whether there is any possibility of reaching a settlement;
24
Art. 11 stipulates:
A financial services enterprise which, by violating any provision in either of the two preced-
ing articles, causes harm to a financial consumer shall bear liability for damages; provided,
however, that this shall not apply if the financial services enterprise can prove that occur-
rence of the harm was not due to: its failure to fully understand the suitability of a product
or service to the financial consumer; its failure to provide an explanation, or provision of an
explanation that was untrue or incorrect; or its failure to fully disclose risks.
25
Id.
280 C.-h. Tsai
if not, the ombudsman committee will start the committee hearing procedure. From
the moment the case is referred to the FOI, the decision must be made within 3
months (Chiu et al. 2012, 45–46). This system was designed to address disputes in
a reasonable and timely manner. The process of dispute resolution is outlined in Fig.
16.2 below.
Nevertheless, some problems remain with the design of the current system. The
first issue is the protection of a retail investor’s right to choose from various dispute-
resolution civil procedures. The FCPA leaves room for the two parties to agree
freely on whether to be bound by the committee’s decision. The FCPA also devised
A Financial Consumer Dispute
A Retail Investor Complains to the Financial

Institution Concerned
Both Parties
Agree
A Decision is Made by the Financial Institution Case Close
If the Retail Investor Is Unsatisfied with the

Decision or the Financial Institution Does
Not Reply within 30 days
Apply to the FOI within 60 Days
Both Parties
Agree
Mediation Proceedings Instituted by
Case Closed
the FOI
Where Any Party to the Dispute Does Not Agree to Participate in the
Mediation Proceedings, or if the Mediation Proceedings Fail to Achieve
a Resolution
Ombudsman Committee Continues Reviewing the Case and

Makes a Decision
The Retailer Investor The Financial

Accepts the Decision Is the Disputed Institution Must
The Retail Investor is No
Value above a
Informed of the Decision Accept the
Certain Amount?
Decision
The Retail Investor
Rejects the Decision Yes
Other Civil Dispute The Result Depends The Decision

Resolution Procedures on Whether the Confirmed by
Can be Accessed, e.g. Financial the Court is
Courts Institution Accepts Binding
the Decision
Fig. 16.2 Flowchart of dispute resolution after the establishment of the FOI (Lian 2013, 95)
an “agreement in advance” mechanism: if a financial institution agrees to enter into

dispute resolution procedures under the FCPA, either through a written statement
before entering into the procedures or in a contract involving the disputed financial
products or services, the financial institution will automatically be bound by the
ombudsman committee’s decision in cases where the value of the disputed products
or services is under a certain amount (Lian 2013, 108).26 However, in cases where
there is no agreement in advance or the value of the disputed products or services
exceeds “a certain amount,” the financial institution retains the final say on whether
or not it will be bound by the FOI’s decision. This is unfair to retail investors with
weaker bargaining power (Lin 2011, 36; Kuo 2012, 77).
Second, members of the ombudsman committee make decisions by casting
votes; this process makes the composition of the committee a crucial variable. The
time needed to review a case could be prolonged, as the committee members do not
work full-time. However, it is required by law that a committee consist of a wide
range of professionals “borrowed” from outside institutions, and therefore full-time
committee members may be an option for reform in the future (Lin 2011, 38–39).
In order to maintain fairness in their decisions, committee members should be pro-
tected from unnecessary liabilities in exercising their authority, which would also
require an amendment to the FCPA (Kuo 2012, 79). Neither does the current system
offer an internal review mechanism, which might be necessary to maintain the fair-
ness and coherency of the FOI’s decisions (Kuo 2012, 79).
Third, the authority of the committee is also important. As it stands, the FCPA
does not impose a real duty on financial services enterprises to cooperate with the
committee, such as to provide necessary documents. Art. 20, for example, allows the
committee to ask financial institutions to provide necessary documents, but it does
not grant the committee the power to impose punishment for a failure to cooperate,
thus further weakening the committee’s authority. Therefore, penalties for non-com-
pliance need to be clearly codified in the FCPA in the future (Lin 2011, 39).
Furthermore, based on the limited range of subjects covered in the FCPA, it
appears that different authorities continue to regulate other relevant financial prod-
ucts or services. For example, in one court case involving investment-linked insur-
ance policies, the financial product in question was in fact linked to structured notes;
however, whether this case could have been reviewed by the FOI under the current
provisions of the FCPA is unclear (Wang 2011b, 1989). One commentator indi-
cated that this conundrum substantiates the necessity of integrating the regulation of
all financial-consumer-related cases under one law, thus providing full protection to
financial consumers as the U.S. Consumer Financial Protection Bureau (“CFPB”)
does (Wang 2011b, 1990).
26
Please note that “a certain amount” is determined according to product types. For example, the
threshold amount is 1 million NTD for investment-linked products or services, while the amount
for non-investment-linked ones is 0.1 million NTD (Financial Supervisory Commission 2012).
282 C.-h. Tsai
16.4 Conclusion
Concepts and Regulations similar to the rule of changed circumstances have long
been applied in Taiwan, particularly in efforts to address the changes in the eco-
nomic environment that have occurred during the second half of the twentieth cen-
tury, despite the fact that the rule was not officially codified in the CC until 1999.
However, the elements of Article 227-2 of the CC still leave it to the courts to
establish a fixed and clear standard for applying the rule and to furnish guidance on
the possible legal consequences of doing so. Based on previous court practices, it
should be possible to apply this rule in financial-crisis-related disputes, but such
cases are rare.
Obviously, among the disputes that arose during and after the 2008 GFC, dis-
putes over structured notes deserve special attention, especially due to the bank-
ruptcy of Lehman Bros. These particular disputes illustrate how extremely
complicated the financial market is without proper and clear regulation.
The multitude of suits brought in the wake of the GFC illuminated the chaotic
state of the legal remedies available to complainants. The CC and other special laws
provide a number of possible causes of actions, but few of them are well-suited to
address disputes over financial products or services. Although Article 227-2, which
governs the rule of changed circumstances, should have been applied as a remedy,
it was rarely referred to in such cases. This may be because the requirements of
applying the rule of changed circumstances were difficult to meet and the legal
consequences of the rule were not ideal for retail investors, or because retail inves-
tors possessed insufficient legal knowledge to apply the rule.
In order to end such disputes over structured notes, a new set of rules and regula-
tions under the FCPA was eventually passed in 2011. Nevertheless, though the
FCPA appeared to provide additional protection to financial consumers, it has not
yet established an exclusive system to cover all financial consumer disputes. There
is still room for the FCPA to be further improved and refined; we must continue to
draw knowledge and experience from the designs of foreign professional authorities
for consumer financial protection, such as the CFPB in the United States, as well as
other practices used in different dispute-resolution civil procedures in Taiwan.
Acknowledgement I thank Prof. Wen-Yeu Wang of National Taiwan University and Prof. Yen-
Lin Agnes Chiu of Fu Jen Catholic University, Taiwan for their comments and suggestions. I also
thank Yen-nung Wu for outstanding research assistance. I acknowledge research funding from the
Ministry of Science and Technology of Taiwan (MOST 103-2919-I-002-004-A1) and
Multiculturalism in Monsoon Asia Program at National Tsing Hua University, Taiwan. Any
remaining errors or omissions are, of course, my own.
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pan jue zhi yan jiu (The structured notes fiasco in the courts: A study of relevant judgments
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161–221.
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zhi jian shi (A study on the most updated court decisions on structured-note disputes—A sur-
vey of banks’ fiduciary duties). In Hou ECFA Shi Zhan Tsai Jin Fa Lu (Post–ECFA financial
laws), ed. LCS and Partners, 111–130. Taipei: Shu Ch’uan.
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Li, L.-C. 2009. Jin rong shang pin xiao shou jiu fen yu qiu chang an li fen xi: Yi lian dong shi zhai
quan xiao shou wei zhong xin (An analysis of disputes in sales of financial products and rele-
vant cases—Centered in structured notes). Quan Guo Lu Shi (Taiwan Bar J) 13(8): 25–43.
Lian, C.-C. 2013. Jin rong xiao fei zhe bao hu fa yu ping yi an li jie xi (The financial consumer
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zhai pan jue zhi shi zheng guan cha chu fa (Meditations on liability rules in the Financial
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Chapter 17
Certainty Over Clemency: English Contract
Law in the Face of Financial Crisis
Horace Yeung and Flora Huang
Abstract This Chapter has the objective to consider the legal implications of nega-
tive economic trends under English contract law in the aftermath of the global
Financial Crisis of 2007–2008. Unlike other jurisdictions, most notably in civil law
countries, the English position in the law governing a fundamental change in cir-
cumstances has remained narrow, that is, no relief will be granted unless it is an
exceptional situation. The English courts deal with the issue either by the doctrine
of frustration or through construing contractual force majeure provisions. Following
the crisis, indeed there have been an increasing number of cases going down these
avenues. Apart from relying on frustration or force majeure clause, another emerg-
ing phenomenon is that there has been a growth in allegations of misrepresentation
and therefore requesting a rescission of contract. In either case, the aim of claimants
is apparently trying to bring the contractual obligations to an end.
17.1 Introduction
Although originated in the US, the Financial Crisis has had a widespread impact
across the globe. Starting from the financial markets, eventually virtually all sectors
in the society have been affected, no matter mega sized banks like Lehman Brothers
or ordinary citizens like you and me. Accordingly, faced with a fundamental change
of circumstances, that is unforeseen and unforeseeable at the time of making and
signing the contract before the crisis, it might be inevitable for certain contractual
This Chapter was based on a much shorter national report solely prepared by Horace Yeung for the
14th International Congress of Comparative Law, 20–26 July 2014, at the University of Vienna,
Austria. Horace Yeung would like to thank his co-author (also colleague at Leicester) Flora Huang
for her input by substantially extending the discussions in the national report to form a full Chapter
in this edited volume, as well as Prof. Rona Serozan for coordinating the Congress session on the
topic ‘The Effects of Financial Crises on the Binding Force of Contracts: Renegotiation, Rescission
or Revision’ as the general reporter. The usual disclaimer applies.
H. Yeung (*) • F. Huang
School of Law, University of Leicester, Leicester, UK
e-mail: horace.yeung@le.ac.uk; flora.huang@le.ac.uk

286 H. Yeung and F. Huang
parties to have second thoughts about their contractual obligations. As a result, it is

crucial to examine the relevant area of English contract law in this regard.
As put by Thomas (2011: 23), there have been ‘[emerging] English cases…in
which the legal implications of negative economic trends have been argued’ but English
courts have ‘upheld a position which places certainty above clemency in commercial
contracts’ by maintaining the traditional position for making exceptions to adverse
economic circumstances. This Chapter has the objective to consider the legal implica-
tions of negative economic trends under English contract law in the aftermath of the
Financial Crisis. In the next section, the Chapter will explore the impact of the crisis on
the UK briefly. The crisis did not only lead to the bail-out of banks such as Royal Bank
of Scotland, but also created hardship on small and medium‐sized enterprises and
ordinary citizens through the drying up of credits and increasing unemployment. Then,
in Section Three, it will proceed to look at the principle of pacta sunt servanda or
‘sanctity of contracts’ after the crisis. It appears that other jurisdictions notably those in
civil law countries would provide more leeway regarding a change of circumstances.
In contrast, the UK position remains a strict adherence to the principle enshrined in
Paradine v Jane.1 Afterwards, in the following sections, this work will examine the
bases for deviating from pacta sunt servanda, namely frustration and force majeure
clause, the conditions and appearances of the exceptional circumstances requires, and
the related legal consequences. Finally before the conclusion, the Chapter will con-
sider a parallel development in English contract law in which contractual parties might
invoke misrepresentation with a view to finding an escape route through rescission of
contracts.
17.2 Impact of the Financial Crisis on the UK
Following the Financial Crisis which began in 2007, different governmental bodies
have tried to find out the causes, impact and remedies of it with a view to preventing
the same from happening again (Financial Services Authority 2009; High Level
Group of Financial Supervision in the EU 2009; Financial Crisis Inquiry Commission
2011). The Financial Crisis Inquiry Commission (2011: xvii) in the US alleged that
the increasing sophistication of the financial sector had set a perfect scene for the
crisis. From 1978 to 2007, the amount of debt held by the financial sector soared
from USD 3 trillion to USD 36 trillion, outgrowing the rise of gross domestic prod-
uct (GDP) by more than a double during the same period. Similarly by 2005, the ten
largest commercial banks in the US held 55 % of the industry’s assets, again more
than double the level held in 1990. On the eve of the crisis, financial sector profits
constituted 27 % of all corporate profits in the US, up from 15 % in 1980. As the
High Level Group of Financial Supervision in the EU (2009: para. 1) indicated,
although the crisis had originated primarily in the US, the crisis subsequently went
1
[1647] Al 26; 82 ER 897.
17 Certainty Over Clemency: English Contract Law in the Face of Financial Crisis 287
global, deep and contagious. From 2007 to 2009, falls in global stock markets
resulted in losses in the value of the listed companies of more than EUR 16 trillion,
equivalent to about 1.5 times the GDP of the EU.
The Financial Crisis was triggered by the burst of a widespread housing bubble
in the US. Pressure to promote home ownership for low income households led to
unregulated or insufficiently regulated mortgage lending (High Level Group of
Financial Supervision in the EU 2009: para. 7). Subprime mortgage lending in the
US rose significantly from USD 180 billion in 2001 to USD 625 billion in 2005.
Housing market problems were then recognised as widespread in UK, US and other
countries, as house prices fell and supply of credit dried up (Financial Services
Authority 2009: 27). A number of financial institutions went into trouble, including
Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG and Washington
Mutual in the US, Northern Rock, Halifax Bank of Scotland (HBOS), Bradford &
Bingley and Royal Bank of Scotland (RBS) in the UK, as well as those outside of
the US and UK such as Icelandic banks. Indeed, the crisis reached its climax on 15
September 2008 when Lehman Brothers filed for bankruptcy and destabilised the
global banking system.
According to the investigation by Buckley (2011: 196), the downfall of the UK
banks seemed to have their own specific reasons. Northern Rock was engaging in
dangerous business practice by selling on mortgages for repackaging, in which this
market subsequently stalled. Similarly, HBOS invested heavily in credit default
swaps and collateralised debt obligations, with a large exposure to US mortgages.
On the other hand, for RBS, the bank suffered most from an aggressive acquisition
strategy, as shown in the hostile takeover of NatWest in 1999 and participation in the
consortium of break-up of ABN Amro in 2007. The end result was that all these
banks had to be rescued by the government (HM Treasury 2012). On 17 February
2008, the UK Treasury announced that Northern Rock would be taken into public
ownership. Northern Rock was nationalised the following day. For this, the Banking
(Special Provisions) Act 2008 was passed on 21 February to provide the govern-
ment with powers to nationalise banks. Likewise, on 13 October 2008, the Chancellor
announced GBP 37 billion of capital support for UK banks. The Treasury acquired
holdings of GBP 20 billion in RBS, GBP 12 billion in HBOS and GBP 5 billion in
Lloyds TSB. Some banks were rescued by being taken over by other banks. For
example, both Alliance & Leicester and Bradford & Bingley are now part of the
Spanish bank group Santander.
It was not just the banks which suffered, but other stakeholders as well. Basically
all taxpayers in the UK had to foot the bill when the government nationalised the
aforementioned banks and for all the pay-out under the Financial Services
Compensation Scheme.2 Furthermore, according to a research conducted by the
2
The scheme was set up under the Financial Services and Markets Act 2000, becoming operational
on 1 December 2001. It is the UK’s compensation fund of last resort for customers of authorised
financial services firms. It will pay compensation if a firm is unable, or likely to be unable, to pay
claims against it. This is usually because it has stopped trading or has been declared in default. The
scheme covers business conducted by firms authorised by the Financial Conduct Authority and the
Centre for Small and Medium‐Sized Enterprises of the University of Warwick, the
crisis and ensuing recession have led to both a tightening of loan approval thresh-
olds and an increase in default risk (Fraser 2010). In terms of the availability and
cost of finance for small firms, for instance, term loan rejections increased to 16.3
% in 2008 from 6.1 % in 2004. As regards the overall impact of the crisis on the UK
economy, the Bank of England revealed that in the period of around 2008–2010,
UK’s output in terms of GDP fell by 6 % (Faccini and Hackworth 2010). Employment
fell by almost 2 % in the same period with a drop in average working hours to a
similar degree. Trade was adversely affected in light of the fact that its level in 2010
remained 5 % below that of 2008 and 17 % below what it would have been had it
continued to grow at its pre-crisis average rate (Domit and Shakir 2010). The vul-
nerable was especially affected, Banks and colleagues (2012) examined the effect of
the crisis on the finances of those aged 50 and over in England and they found that
many of these households had experienced a significant wealth shock.
Given that the society was being hit from all angles and at an unprecedented
scale, there is no wonder why various parties in recent years have attempted to avoid
contractual obligations, in particular by alleging frustration or the application of a
force majeure clause, in cases such as Classic Maritime Inc v Lion Diversified
Holdings,3 Tandrin Aviation Holdings v Aero Toy Store4 and Gold Group Properties
v BDW Trading (formerly known as Barratt Homes Limited).5 In Classic Maritime,
Classic brought the action against Lion under a written guarantee in 2008 by which
it had guaranteed the obligations of its subsidiary, Limbungan, under a Contract of
Affreightment (COA). Lion raised two defences to the claim. One of which was that
performance of the COA was frustrated in part, inasmuch as it was unable to dis-
charge the ships on two nominated voyages in Malaysia, or that performance of
those shipments was excused under the force majeure clause in the COA. In Tandrin
Aviation, the action concerned the sale by Tandrin to Aero of a new Bombardier
executive jet aircraft. However, subsequently, Aero failed to participate in the pre-
delivery contractual procedures and in alleged breach of contract failed to accept
Tandrin’s tendered delivery of the aircraft in 2009 or pay the balance of the purchase
price. Among Aero’s defences, one of which was that the company had been enti-
tled to rely on the force majeure clause, contained in Clause 7.17 of in the aircraft
sale agreement. Finally in Gold Group, the dispute between the parties arose out of
a development agreement in 2007 relating to a substantial site in Surrey. The inten-
tion was that Barratt would develop the site by building a large number of houses
and flats, which would then be sold on long leases, with Gold Group and Barratt
sharing the revenue generated by the sales. In the event, almost nothing happened
on site between 2008 and 2009. Barratt argued that, because they had received
advice that a fall in the property market meant that those minimum prices would not
Prudential Regulation Authority. European firms (authorised by their home state regulator) that
operate in the UK may also be covered.
3
[2009] EWHC 1142 (Comm).
4
[2010] EWHC 40.
5
[2010] EWHC 323 (TCC).
be achieved, they were not obliged to start work and/or the agreement was frus-
trated. In all these cases, attempts to rely on the Financial Crisis as a ground of
frustration or for invoking force majeure were rejected.
17.3 Principle of Pacta Sunt Servanda amid the Global

Financial Crisis
English contract law is derived from four legal sources: common law, statute, inter-
national convention and EU law (Beale 2012: para. 1–002). Among which, the com-
mon law (including equity) provides the fundamental rules governing all aspects of
the law applicable to contracts generally (Beale 2012: para. 1–003). Unlike other
branches of law such as company law which has a ‘Companies Act’, English law
has not adopted a contract law code nor a ‘Contract Act’. Yet, statute has become
increasingly important in governing certain specific aspects of contracts. Examples
include the Unfair Contract Terms Act 1977 to control exemption clauses and cer-
tain related classes of unfair terms, the Law Reform (Frustrated Contracts) Act 1943
to govern the consequences of frustration, and the Consumer Credit Act 1974 for
contracts of consumer credit.
The foundation of the principle of pacta sunt servanda in English contract law
was laid down in the case Paradine v Jane.6 In this case, the claimant lessor claimed
rent due from the defendant lessee. The defendant argued that, as she had been
evicted from the land by Prince Rubert, a German Prince who was an enemy to the
King, and she could not take the profits, therefore she ought not to be liable for the
rent. The court rejected the plea from the defendant. She was still held liable for the
rent. The case denied the existence of a doctrine of excuse for non-performance.
According to the judgement:
[W]hen 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.7
Such a principle of sanctity of contract has barely changed in the face of the
recent Financial Crisis. According to the Turner Review which investigated the
causes of the crisis and made recommendations on the changes in regulation, the
regulatory debates have largely been centred on the capital adequacy, accounting
and liquidity of financial institutions, as well as the institutional and geographic
coverage of regulation (Financial Services Authority 2009). To consider whether
there can be an escape route for contracting parties adversely affected by the crisis,
there is a need to examine the rules of English law governing changes of
circumstances. Indeed around the world, various attempts have been made by schol-
ars to explore the approaches of various jurisdictions in this regard.
6
[1647] Al 26; 82 ER 897.
7
Paradine v Jane [1647] Al 26; 82 ER 897.
Ridder and Weller (2014) indicate that whilst pacta sunt servanda or the ‘sanc-
tity of contracts’ is a fundamental principle of private law, it can be overcome in
cases of impossibility, force majeure, hardship or unforeseen circumstances. Using
Germany as an example, they point out that the two main provisions of Section
275(2) and Section 313 German Civil Code are the answer from German contract
law. Firoozmand (2007), in his article comparing the approaches in France,
Germany, the US and Muslim countries, reveal that the Islamic doctrine of Quwa
Qahira may be comparable to concepts such as force majeure, imprevisión,8 frustra-
tion, commercial impracticability and Wegfall der Geschäftsgrundlage.9 Rösler
(2007) believes that English law is roughly placed between the Germanic and
French legal solutions in a sense that it is not as conservative as France which rejects
the concept of imprevisión but at the same time not as radical as Germany which
allows the courts to revise the contract. In the book by Uribe (2011) which compares
European and Latin American jurisdictions as well as American contract law, he
stresses the recognition of a change of circumstances as a remedy for the affected
party in the name of justice and fairness as a counterbalance to the general principle
of freedom of contract. Also it is equally important to ensure that a proper set of
remedies is available for the affected parties, including but not necessarily limited
to, the duty to renegotiate and the revision of the contract by the courts. Some juris-
dictions might have gone far enough to respond to the crisis. In the Czech Republic,
the new Czech Civil Code which entered into force on 1 January 2014 entails provi-
sions on a hardship clause and its legal effects (Fiala and Selucká 2014).10 In con-
trast, for common law countries, major market changes are rarely, if ever, the basis
of avoidance of a contractual obligation (Crystal and Giannoni-Crystal 2010). In the
US, the Restatement (Second) of the Law of Contracts and the Uniform Commercial
Code both reflect this ‘principle of market risk’ and reported case law dealing with
the effect of the economic crisis on contracts are quite uniform in applying the mar-
ket risk principle to deny relief (Crystal and Giannoni-Crystal 2010). Thomas
(2011: 22–23) has tried to draw a line for the distinction of common law and civil
law jurisdictions in this regard by suggesting that the latter typically provide ‘a basis
on which a contract may be adjusted to reflect significant changes to the economic
equilibrium of the contract’, whereas English law ‘has always been regarded as at
the upper end of the spectrum in terms of rigour in dealing with claims for relief due
to adverse economic circumstances’. In other words, the English courts have upheld
a position which places certainty above clemency in commercial contracts.
8
Articles 1147 and 1148 of the French Civil Code.
9
The German approach.
10
Sections 1764–1766 of the Czech Civil Code No 89/2012 Coll.
17.4 Bases for Deviating from Pacta Sunt Servanda
In the view of Treitel (2014: para. 1–001), the major issue here lies in a conflict
between two fundamental principles: pacta sunt servanda and rebus sic stantibus.
The former insists on the literal performance of contracts irrespective of events
occurring after the contract. In contrast, the latter realises the situation that contrac-
tual obligations may be discharged by supervening events where these have brought
about a change of circumstances so significant as to destroy the basic assumption(s)
the parties contemplated initially. The same tension can also be illustrated in J
Lauritzen AS v Wijsmuller BV,11 Bingham LJ on the one hand recognised ‘the rigour
of the common law’s insistence on literal performance of absolute promises’ but on
the other hand the doctrine of frustration has evolved ‘to give effect to the demands
of justice, to achieve a just and reasonable result, to do what is reasonable and fair,
as an expedient to escape from injustice where such would result from enforcement
of a contract in its literal terms after a significant change in circumstances’.12
According to McKendrick (2012: 701), the reference made by Bingham LJ is an
important one and there are several elements which can be taken note of: first, the
common law rule was a very strict one which was generally reluctant to absolve a
contracting party from the consequence of his failure to perform his contractual
obligations; second, the effect of the doctrine of frustration is to provide such an
absolving power; third, the doctrine only applies where there has been a ‘significant
change in circumstances’; finally, the doctrine does not apply where express provi-
sion, generally known as a force majeure or hardship clause, is in place to regulate
events which may impede or hinder performance of the contract. Accordingly, the
two subsections below will seek to explore each of these two mechanisms, namely
the doctrine of frustration and a force majeure or hardship clause respectively.
17.4.1 Frustration
The rules of English law governing changes of circumstances are in some respects
more limited than those in many civil law systems (Cartwright 2013: 252).13 A con-
tract may be discharged on the ground of frustration when something occurs after
the formation of the contract which renders it physically or commercially impossi-
ble to fulfil the contract or transforms the obligation to perform into a radically dif-
ferent obligation from that undertaken at the moment of entry into the contract
(Beale 2012: para. 23–001). It is worth noting that in English law, there is no such
thing as partial or temporary frustration, that is, the contract is either frustrated or
11
[1990] 1 Lloyd’s Rep. 1. See also Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C.497
at 510.
12
[1990] 1 Lloyd’s Rep. 1 at 8.
13
See also the discussions above in Part 14.3.
remains in force unless the obligations are ‘severable’, as illustrated in Islamic

Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association.14
The doctrine of frustration was established in its present form in Taylor v
Caldwell.15 The case was about a contract for the use of a music hall which was
destroyed by fire before the time for performance. Both parties were excused from
performance of their obligations under the contract. Blackburn J said:
Where, from the nature of the contract, it appears that the parties must from the beginning
have known that it could not be fulfilled unless when the time for the fulfilment of the con-
tract arrived some particular specified thing continued to exist, so that, when entering into
the contract, they must have contemplated such continuing existence as the foundation of
what was to be done; there, in the absence of any express or implied warranty that the thing
shall exist, the contract is not to be construed as a positive contract, but as subject to an
implied condition that the parties shall be excused in case, before breach, performance
becomes impossible from the perishing of the thing without default of the contractor.16
This was said to be based on an implied term in the contract, given that it is virtu-
ally impossible for contracts to contain express provision for every possible eventu-
ality which might interfere in the contractual performance. A more liberal approach
was also witnessed in Jackson v Union Marine Insurance17 and Krell v Henry.18
However, subsequent cases in the twentieth century adopted a restrictive approach,
albeit still broader than the strict approach taken in Paradine v Jane.19 The courts are
generally reluctant to invoke the doctrine of frustration. Lord Roskill in The Nema
said that the doctrine of frustration was ‘not lightly to be invoked to relieve contract-
ing parties of the normal circumstances of imprudent bargains’.20
The modern test for frustration was set out in the speech of Lord Radcliffe in
Davis Contractors Ltd v Fareham UDC:
[An implied term of the contract] is in line with the tendency of English courts to refer all
the consequences of a contract to the will of those who made it. But there is something of a
logical difficulty in seeing how the parties could even impliedly have provided for some-
thing which ex hypothesi they neither expected nor foresaw; and the ascription of frustra-
tion to an implied term of the contract has been criticised as obscuring the true action of the
court which consists in applying an objective rule of the law of contract to the contractual
obligations that the parties have imposed upon themselves.21
This construction theory approach rejects the artificiality of the implied term
approach and requires an assessment of the events that have occurred in the light of
the agreed terms of the contract in order to determine whether the agreed performance
14
[2010] EWHC 2661 (Comm).
15
(1863) 3 B&S 826.
16
Taylor v Caldwell (1863) 3 B. & S. 826 at 833–34.
17
(1874) LR 10 CP 125.
18
[1903] 2 KB 740.
19
See for example, Davis Contractors Ltd v Fareham UDC [1903] UKHL 3 and J Lauritzen AS v
Wijsmuller BV [1990] 1 Lloyd’s Rep. 1.
20
The Nema [1982] AC 724 at 752.
21
Davis Contractors Ltd v Fareham UDC [1956] UKHL 3.
is not impossible or of a fundamentally different nature (Poole 2012: 455–56). To

decide whether or not a contract has been frustrated, a ‘multi-factorial’ approach
has been applied by more recent authority to take account of all of the facts and
circumstances of the case.22 Examples of factors include:
Among the factors which have to be considered are the terms of the contract itself, its
matrix or context, the parties’ knowledge, expectations, assumptions and contemplations,
in particular as to risk, as at the time of contract, at any rate so far as these can be ascribed
mutually and objectively, and then the nature of the supervening event, and the parties’
reasonable and objectively ascertainable calculations as to the possibilities of future perfor-
mance in the new circumstances.23
The construction theory is supported in the Gold Group case, as per Coulson J,
‘In any situation where one party to a contract alleges that the contract has been
frustrated, the proper construction of the contract will be the necessary starting-
point of the Court’s investigation.’24 This can be made in a sharp contrast to
Blackburn J’s reference in Taylor v Caldwell to ‘an implied condition that the par-
ties shall be excused’.25 As a result, the implied term theory is now generally
rejected.26
17.4.2 Express Term in the Contract
If a contract contains a provision dealing with the situation of a change in circum-

stances, it is not a case of frustration. It is simply a matter of giving effect to the
provision of the contract. Examples are a force majeure clause or a hardship clause.
The expression ‘force majeure clause’ is normally used to describe a contractual
term by which one (or both) of the parties is entitled to cancel, the contractor is
excused from performance of the contract, in whole or in part, or is entitled to sus-
pend performance or to claim an extension of time for performance, upon the hap-
pening of a specified event or events beyond his control (Beale 2012: para. 14–140).
An example of force majeure clause is found in Channel Island Ferries Limited v
Sealink UK Limited27:
22
Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea
Angel) [2007] EWCA Civ 547, [2007] 2 Lloyd’s Rep. 517.
23
24
Gold Group Properties v BDW Trading (formerly known as Barratt Homes Limited) [2010]
EWHC 323 (TCC) at [45].
25
Taylor v Caldwell (1863) 3 B. & S. 826, 833–34.
26
See also, for example, Shell (UK) Ltd v Lostock Garage Ltd [1976] 1 W.L.R. 1187 and Great
Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407.
27
[1988] 1 Lloyd’s Rep. 323.
A party shall not be liable in the event of nonfulfilment of any obligation arising under this
contract by reason of Act of God, disease, strikes, Lock-Outs, fire, and any accident or
incident of any nature beyond the control of the relevant party.
On the other hand, a hardship clause will generally define what constitutes ‘hard-
ship’ and will lay down a procedure to be adopted by the parties in the event of such
hardship occurring (McKendrick 2013: 256–7). Where there is a force majeure
clause in the contract, that clause will usually be enforced by the courts (Poole
2012: 454). At the same time, the court is very cautious in a sense that the clause is
‘not to be lightly involved’ since it operated ‘to kill the contract’.28 In the absence of
a force majeure clause ‘the doctrine of frustration operates within narrow
confines’.29
In reality, the courts have tried to restrict the operation of such clauses by adopt-
ing a process of narrow construction of words (Treitel 2014: para. 12–009). In
Metropolitan Water Board v Dick Kerr,30 by a contract made in July 1914, a firm of
contractors contracted with a water board to construct a reservoir to be completed
within 6 years, subject to a proviso that if by reason of (inter alia) any difficulties,
impediments, or obstructions whatsoever and howsoever occasioned the contractors
should, in the opinion of the engineer, have been unduly delayed or impeded in the
completion of the contract it should be lawful for the engineer to grant an extension
of the time for completion. By a notice given by the Ministry of Munitions in
February 1916, in exercise of the powers conferred by the Defence of the Realm
Acts and Regulations, the contractors were required to cease work on their contract
and they ceased work accordingly. The contractors claimed that the effect of the
notice was to put an end to the contract. It was held that the contract was frustrated
in spite of the fact that the events which had happened were literally within the
clause which provided for delays. The justification of the court was that, the hard-
ship clause did not cover the case ‘in which the interruption is of such a character
and duration that it vitally and fundamentally changes the conditions of the contract,
and could not possibly have been in the contemplation of the parties to the contract
when it was made’.
As a result, the general ‘catch-all’ words of a typical force majeure clause will
not enable that party to excuse its non-performance in times of recession or the col-
lapse of the world’s financial markets by alleging economic or funding difficulties
(Poole 2012: 465). Such circumstances would need to be expressly specified in the
clause for it to have an effect.31
28
J. Lauritzen A/S v Wijsmuller B.V. [1990] 1 Lloyd’s Rep. 1.
29
As per Coulson J in Gold Group Properties v BDW Trading (formerly known as Barratt Homes
Limited) [2010] EWHC 323 (TCC) at [68].
30
[1918] AC 119.
31
In Tandrin Aviation Holdings v Aero Toy Store [2010] EWHC 323 (TCC), the principal defence
which Aero has advanced to seek to justify its refusal to accept delivery of the aircraft was that the
alleged ‘unanticipated, unforeseeable and cataclysmic downward spiral of the world’s financial
markets’ triggered the force majeure clause in the agreement.
17.5 Conditions for the Acceptance of the Exceptional Fact
Having discussed the two general mechanisms in English contract law governing a
change in circumstances, this section and the next will explore some substantive
issues in invoking the doctrine of frustration and/or the force majeure clause in a
contract.
17.5.1 Foreseeability
Apparently the doctrine of frustration ought not to apply to an event which is within
the contemplation of the parties at the time the contract is concluded. This proposi-
tion has been challenged by Lord Denning in The Eugenia:
It has frequently been said that the doctrine of frustration only applies when the new situa-
tion is “unforeseen” or “unexpected” or “uncontemplated,” as if that were an essential fea-
ture. But it is not so. The only thing that is essential is that the parties should have made no
provision for it in their contract. The only relevance of it being “unforeseen” is this: If the
parties did not foresee anything of the kind happening, you can readily infer they have made
no provision for it: whereas, if they did foresee it, you would expect them to make provision
for it. But cases have occurred where the parties have foreseen the danger ahead, and yet
made no provision for it in the contract.32
Rix LJ summarised the position on foreseeable and foreseen events as follows:

In a sense, most events are to a greater or lesser degree foreseeable. That does not mean that
they cannot lead to frustration. Even events which are not merely foreseen but made the
subject of express contractual provision may lead to frustration: as occurs when an event
such as a strike, or a restraint of prices, lasts for so long as to go beyond the risk assumed
under the contract and to render performance radically different from that contracted for.
However…the less that an event, in its type and its impact, is foreseeable, the more likely it
is to be a factor which, depending on other factors in the case, may lead on to frustration.33
However, two questions may arise: firstly, whether the allegedly frustrating event
has to be foreseen or foreseeable by one party only or both parties. Many dicta sup-
port the view that frustration is excluded where the event was foreseen or foresee-
able by both parties (Treitel 2014: paras. 13–007 & 13–008). However, sometimes
it is not necessary. When the event could have been foreseen by the party claiming
to be discharged, but not by the other party, the doctrine of discharge could still be
excluded.34 Secondly, there is a question of whether the degree and extent of fore-
seeability should be taken into account. For example in Krell v Henry,35 the defen-
dant agreed to hire from the plaintiff a flat on which days it had been announced that
32
The Eugenia [1964] 2 QB 226 at 239.
33
34
Walton Harvey Ltd v Walker & Homfrays Ltd [1931] 1 Ch. 274.
35
[1903] 2 KB 740.
the coronation processions would take place. However, there was a good deal of
contemporary evidence which suggested that it was ‘foreseeable’ that King Edward
VII might fall ill on the date fixed for his coronation (Treitel 2014: para. 13–012).
In The Eugenia,36 charterers took a vessel on a time charterparty for a ‘trip out to
India via Black Sea’ including a war clause forbidding the charterers to bring her
within a dangerous zone without the owners’ consent. The vessel was trapped in the
Suez Canal, which was a dangerous zone when she entered it. On her release the
charterers claimed that the contract was frustrated and the owners treated this as a
repudiation and claimed damages. At that time, mercantile men realised that there
was a risk that the Suez Canal might be closed owing to the Suez Crisis of that year,
and the agents of the parties indeed appreciated the risk by making suggestion for
dealing with it (Treitel 2014: para. 13–014).
17.5.2 Risk Allocation
Poole (2012: 466–69) has put forward two scenarios where in one there is express
risk allocation, where in another the foreseeable risk is not provided for in the con-
tract. In the first scenario, the position was explained by Tomlinson J in The
Florida37:
[A] clause may give one or other party certain rights or protections in certain circumstances,
but those circumstances can still result in frustration of the contract unless all of their effects
on the rights and liabilities of both parties are dealt with comprehensively.
In Bangladesh Export Import v Sucden Kerry SA,38 Bangladesh Export Import

entered into contracts with Sucden Kerry for the import of sugar into Bangladesh.
Import licences were required. The contract contained a term which said that
licences were to be obtained by Bangladesh Export Import and that the inability to
obtain an import licence shall not be justification for declaration of force majeure.
Despite the company’s success to obtain licences, these were subsequently revoked.
By placing the risk on Bangladesh Export Import using express term, the possibility
of frustration was excluded.
In the second scenario, although the presumption is, the risk will be allocated to
lie where it falls ‘naturally’, the parties actually foresaw a particular risk but made
no express provision for it did not prevent the frustration doctrine from intervening
(Poole 2012: 468–69). A relevant case is CTI Group Inc v Transclear SA.39 The fact
that a supplier chose not to make goods available for shipment, thus rendering per-
formance by the seller impossible, was not of itself sufficient in the circumstances
to frustrate a contract.
36
[1964] 2 QB 226.
37
[2006] EWHC 1137 (Comm); [2007] 1 Lloyd’s Rep. 1.
38
[1995] 2 Lloyd’s Rep. 1.
39
[2008] EWCA Civ 856.
17.5.3 Extraordinary Circumstances
The question of foreseeability perhaps can best be answered by examples of events

that can be considered as ‘extraordinary’. The following events may be taken as
illustrations of the kind of events which have been held, in the circumstances of
particular contracts, to bring the doctrine of frustration into operation (Beale 2012:
paras. 23–020 & 23–021): destruction of the subject-matter of the contract,40 inca-
pacity or death of a person obliged to perform personal services,41 delay sufficiently
long to frustrate the commercial adventure of the parties,42 a change in the law or
subsequent illegality43 and outbreak of war.44 In the context of financial transactions,
Hudson (2009: 473) believes that contracts which are to be settled by intangible
objects (such as money in bank accounts) would add further complications to the
issue. One example can be, when a stock exchange’s ability to quote a price is ter-
minated, the situation can be regarded as ‘destruction’. Despite the unprecedented
degree of the Financial Crisis witnessed in 2007–2008, this situation apparently has
not happened.
17.6 Appearances of the Exceptional Circumstances
Having discussed the required conditions for the acceptance of the exceptional fact,
this part will proceed to examine the appearances of these exceptional
circumstances.
17.6.1 Impossibility
A contract which has become impossible of performance is frustrated. In the case of

Taylor v Caldwell,45 the destruction of the music hall rendered performance of the
contract impossible the contract was frustrated. Even temporary unavailability of
the subject-matter may frustrate the contract. In Jackson v Union Marine Insurance,46
the contract was frustrated because the ship was being repaired and therefore not
available for the voyage for which she was chartered. Lord Simon has elaborated on
40
For example, Taylor v Caldwell (1863) 3 B&S 826.
41
For example, Graves v Cohen (1930) 46 TLR 121 and Morgan v Manser [1948] 1 KB 184.
42
For example, The Nema [1982] AC 724.
43
For example, Baily v De Crespigny (1869) LR 4 QB 180 and Islwyn BC v Newport BC (1994) 6
Admin. LR 386.
44
For example, Robson v Premier Oil and Pipe Line Co Ltd [1915] 2 Ch. 124.
45
(1863) 3 B&S 826.
46
(1874) LR 10 CP 125.
the question of impossibility in Imperial Smelting v Joseph Constantine Steamship

Line:
Discharge by supervening impossibility is not a common law rule of general application,
like discharge by supervening illegality; whether the contract is terminated or not depends
on its terms and the surrounding circumstances in each case. Moreover, it seems to me that
the explanation of supervening impossibility is at once too broad and too narrow. Some
kinds of impossibility may in some circumstances not discharge the contract at all. On the
other hand, impossibility is too stiff a test in other case.47
Sometimes, the position can be further reinforced by statutes. For instance, pur-
suant to Section 7 of the Sales of Goods Act 1979, ‘where there is an agreement to
sell specific goods and subsequently the goods, without any fault on the part of the
seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.’
17.6.2 Excessive Onerousness
This position was summarised by Viscount Simon:

The parties to an executory contract are often faced, in the course of carrying it out, with a
turn of events which they did not at all anticipate - a wholly abnormal rise or fall in prices,
a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this
does not in itself affect the bargain they have made. If, on the other hand, a consideration of
the terms of the contract, in the light of the circumstances existing when it was made, shows
that they never agreed to be bound in a fundamentally different situation which has now
unexpectedly emerged, the contract ceases to bind at that point.48
Whilst the increased cost of performance may make the contractual performance
something radically different from that which was originally undertaken, the law
appears to exclude frustration in most cases (Poole 2012: 464). In the context of the
financial crisis, it is worth noting that inconvenience, or hardship, or financial loss
involved in performing the contract has been held insufficient to frustrate particular
contracts.49 As Cartwright (2013: 257) points out, English law does not admit ‘eco-
nomic’ frustration. In contrast, ‘impracticability’ has been a ground of discharging
contractual obligations in the US. Section 261 of the Restatement (Second) of the
Law of Contracts provides that:
Where, after a contract is made, a party’s performance is made impracticable without his
fault by the occurrence of an event the non‐occurrence of which was a basic assumption on
which the contract was made, his duty to render that performance is discharged, unless the
language or the circumstances indicate the contrary.
47
Imperial Smelting v Joseph Constantine Steamship Line [1942] AC 154 at 163–64.
48
British Movietonews v London and District Cinemas [1952] AC 166 at 185.
49
As noted by Lord Ratcliffe said in Davis Contractors Ltd v Fareham UDC [1956] UKHL 3, ‘[I]
t is not hardship or inconvenience or material loss which calls the principle of frustration into play’.
See also for example, Tandrin Aviation Holdings v Aero Toy Store [2010] EWHC 40 and some
other cases happened after the Financial Crisis as discussed above.
Nonetheless, there is a differing level of treatment between buyer and seller in

this regard. Uniform Commercial Code Section 2–615 excuses only sellers. This is
because the seller’s loss can be theoretically infinite, for example, the prices of his
raw materials can rise without limit. In contrast, the buyer’s loss can never exceed
the contract price.
The word ‘impracticable’ can be found in English cases sometimes. In Horlock v
Beal,50 Lord Loreburn said, ‘the first question to be decided is whether or not, and
at what date, the performance of this contract of service became impossible, which
means impracticable in a commercial sense.’ Apart from this, the use of ‘impracti-
cability’ or ‘commercial impossibility’ has not been popular among judges even to
Lord Loreburn himself. In Tennants (Lancashire) v CS Wilson,51 he said that ‘the
argument that a man can be excused from performance of his contract when it
becomes “commercially” impossible…seems to me a dangerous contention, which
ought not to be admitted unless the parties have plainly contracted to that effect’.
The Classic Maritime52 case might have provided a distinction between impractica-
bility and impossibility in the aftermath of the Financial Crisis. In that case, the
defendant alleged that the crisis caused an unprecedented and unforeseen collapse
in the demand for steel products and therefore it became impossible for the iron ore
which was scheduled to be delivered to be discharged. Similarly in Tandrin Aviation,
whilst the buyer the alleged ‘unanticipated, unforeseeable and cataclysmic down-
ward spiral of the world’s financial markets’ triggered the force majeure clause,
Hamblen J only found that the clause had only referred to ‘any other cause beyond
the seller’s reasonable control’ and there was nothing ‘which is even remotely con-
nected with economic downturn, market circumstances or the financing of the
deal’.53 As a result, there is still a possibility that a contracting party may claim to
be discharged not under the general doctrine of discharge but under an express pro-
vision of the contract such as a force majeure clause.
17.6.3 Frustration of Purpose
Where the common purpose for which the contract was entered into can no longer
be carried out because of some supervening event, the contract may be frustrated
(McKendrick 2013: 259). An example of frustration of purpose, despite rare, was
illustrated by Krell v Henry.54 The facts of which have been mentioned before. In
this case, the contract contained no express reference to the coronation processions,
or to any other purpose for which the flat was taken. As the processions did not take
place on the days originally fixed, the Court of Appeal held that the contract was
50
[1916] 1 AC 486.
51
[1917] AC 495.
52
[2009] EWHC 1142 (Comm).
53
Tandrin Aviation Holdings v Aero Toy Store [2010] EWHC 40 at [44].
54
[1903] 2 KB 740.
frustrated. However, according to Treitel (2014: para. 7–011), Krell v Henry is con-
troversial in a sense that there is a fundamental question whether the doctrine of
discharge should have been applied at all. The danger of such a rule lies in the fact
that it can be extended to many cases in which a contract has simply, as a result of
supervening events, become for one of the parties a bad bargain, but not in the name
of justice and fairness.
17.7 Legal Consequences of a Frustrated Contract
At common law frustration brings the contract to an end forthwith, without more
and automatically, in the sense that it releases both parties from any further perfor-
mance of the contract (Beale 2012: para. 23–071). A court does not have the power
to allow the contract to continue and to adjust its terms to the new circumstances
(Beale 2012: para. 23–071). Moreover, the remedy of termination for frustration
takes effect not by election of either party, nor by the order of a court, but automati-
cally on the occurrence of the frustrating event (Cartwright 2013: 259). At common
law, the remedy of termination is not retroactive in the sense that both parties are
released from performance of the contract for the future, but there is no automatic
reversal of the performance which has been rendered under the contract (Cartwright
2013: 257).
The Law Reform (Frustrated Contracts) Act 1943 now provides for most of the
legal consequences of frustration. Pursuant to section 1(2) of the Act, all sums paid
or payable to any party in pursuance of the contract before the time when the parties
were so discharged shall, in the case of sums so paid, be recoverable from him as
money received by him for the use of the party by whom the sums were paid, and,
in the case of sums so payable, cease to be so payable. On the other hand, the effect
of frustration upon a claim to recover the value of goods supplied or services pro-
vided prior to the frustrating event is dealt with by section 1(3) of the Act.
17.8 Rescission as a Consequence of Misrepresentation
Apart from relying on frustration and force majeure clause, another post-crisis phe-
nomenon as observed by Poole (2012) in English contract law is that there has been
a growth in allegations of misrepresentation. The modern law relating to misrepre-
sentation, unlike above, is a somewhat complex amalgam of rules of common law,
equity and statute law (Beale 2012: para. para. 6–001). Whilst according to the
Misrepresentation Act 1967 the representee has an absolute right to rescind where
the misrepresentation is fraudulent, the Act also gives the court a discretion to refuse
to permit a representee to rescind a contract, but to award him damages in lieu of
rescission, if the misrepresentation is negligent or wholly innocent. The difference
between frustration and rescission is best summarised by Lord Wright, ‘where there
is frustration a dissolution of a contract occurs automatically. It does not depend, as

does rescission of a contract on the ground of repudiation or breach, on the choice
or election of either party.’55
Recent cases in this area include: Springwell Navigation Corp v JP Morgan
Chase Bank (formerly Chase Manhattan Bank)56 and Erlson Precision Holdings Ltd
(formerly GG132 Ltd) v Hampson Industries PLC.57 In Springwell Navigation, a
bank employee was accused of making representations that certain loan notes linked
to Russian Federation issued bonds were a ‘conservative and liquid investment and
without currency risk’. The Court of Appeal held that what was said by the employee
were expressions of opinion which would not have been actionable. Furthermore
the relevant documentation gave rise to a contractual estoppel preventing any claim
for misrepresentation or misstatement. In Erlson Precision, a share purchase agree-
ment was rescinded where the chief operating officer of the company being sold
knew that income forecasts given to the buyer were no longer accurate, but chose
not to inform anyone. It can be seen that in these two cases one claimant succeeded
in the action but one did not. It might be useful to explore what indeed constitutes
misrepresentation.
The traditional rule is that a misrepresentation must be a false statement of fact,
as distinct from a statement of opinion, a statement of intention or a mere commen-
datory statement (Beale 2012: para. 6–006). In relation to its truthfulness, Rix J in
Avon Insurance v Swire Fraser held that a representation needs not be ‘entirely cor-
rect’, but it should be ‘substantially correct’.58 As regards the meaning of ‘state-
ment’, Denning LJ gave a fairly broad requirement that ‘any behaviour, by word or
conduct, was sufficient to be a misrepresentation if such as to mislead the other
party’.59 For example, such an impression might even be conveyed by simply hand-
ing the document to the customer as if it were a receipt, or by asking her to sign it
without drawing attention to the condition. Merely silence or non-disclosure would
not amount to misrepresentation, but that requires active steps to conceal a defect.
In Gordon v Selico,60 the court held that the estate agent was liable to the buyer of a
property as there had been at the time of the purchase a fraudulent concealment of
dry rot.
A misrepresentation will not be effective to ground relief in law unless it was
material (Beale 2012: para. 6–040). Furthermore, it must be known to the represen-
tee. In Horsfall v Thomas,61 a seller delivered to a buyer a gun which was defective,
for after being fired it exploded, and the buyer was injured. The buyer alleged that
the sale had been procured by fraudulent misrepresentation and that the defect had
been concealed. However, because he had never examined the gun, the
55
Denny, Mott & Dickson v James B. Fraser & Co [1944] AC 265 at 274.
56
[2010] EWCA Civ 1221.
57
[2011] EWHC 1137 (Comm).
58
Avon Insurance & Ors v Swire Fraser [2000] CLC 665 at 670.
59
Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 at 808–9.
60
(1986) 18 HLR 219.
61
(1862) 1 H & C. 90.
misrepresentation should have had no effect on the buyer’s mind and did not induce
the contract. Once it is proved that a false statement was made which is ‘material’
in the sense that it was likely to induce the contract, and that the representee entered
the contract, it is a fair inference that he was influenced by the statement (Beale
2012: para. 6–039).
Although both frustration and rescission bring the primary obligations of the
contractual parties to an end, rescission leaves outstanding the guilty party’s liabil-
ity in damages whilst there is no such liability after discharge by frustration (Treitel
2014: para. 15–005). The combination of remedies available for misrepresentation
depends upon the type of misrepresentation which can be categorised into three
types: fraudulent, negligent and innocent. Fraud was defined by the House of Lords
in Derry v Peek,62 ‘fraud is proved when it is shown that a false representation has
been made: (1) knowingly; or (2) without belief in its truth; or (3) recklessly, care-
less whether it be true or false.’ In contrast, a negligent misrepresentation is one
which is made carelessly, or without reasonable grounds for believing it to be true
(Beale 2012: para. 6–072). Naturally, it follows that innocent misrepresentation is
one which is neither fraudulent nor negligent. At common law, the right to rescind
was confined to cases in which the misrepresentation was fraudulent, but in equity
there was a right to rescind even for innocent misrepresentation (Beale 2012: para.
6–108). Therefore regardless of the type, the victim is often entitled to rescission of
the contract, except under Misrepresentation Act 1967 which gives the court power
to refuse rescission and award damages in lieu for non-fraudulent misrepresenta-
tion. It is worth noting that there is no right to damages (in addition to rescission)
for innocent misrepresentation (Poole 2012: 522). Damages would only come as a
consequence of the court’s discretion under Section 2(2) of Misrepresentation Act
1967 to award damages in lieu of rescission.
As a parallel development to the increase in misrepresentation cases, there has
been a consequential reliance on an express term to exclude liability for misrepre-
sentation. In BSkyB Ltd v HP Enterprise Services UK Ltd (formerly Electronic Data
Systems Ltd),63 Electronic Data Systems was held liable in deceit where it falsely
represented that it had carried out a proper analysis of the amount of time needed to
complete the initial delivery and go-live of a customer contact centre. Consequently,
it held the opinion that, and had reasonable grounds for holding the opinion that, it
could and would deliver the project within the timescales put forward. In the con-
tract, there were clauses limiting Electronic Data Systems’ liability for certain kinds
of loss (except in respect of claims in deceit) and to a liability cap of GBP 30 mil-
lion. Similar cases can also be seen in Raiffeisen Zentralbank Osterreich AG v Royal
Bank of Scotland Plc64 and AXA Sun Life Services Plc v Campbell Martin Ltd.65
Indeed, the use of this sort of provision excluding liability for misrepresentation is
62
(1889) 14 App. Cas. 337.
63
[2010] EWHC 86 (TCC).
64
[2010] EWHC 1392 (Comm).
65
[2011] EWCA Civ 133.
governed by Section 3 of the Misrepresentation Act 1967 (as amended by the Unfair
Contract Terms Act 1977).66
17.9 Conclusion
The Chapter has looked at the legal implications of negative economic trends under
English contract law in the aftermath of the Financial Crisis. As opposed to some
civil law jurisdictions, in common law jurisdictions, major market changes are
rarely, if ever, the basis of avoidance of a contractual obligation. Whilst the US
would still consider the situation of ‘impracticability’ under the Restatement
(Second) of the Law of Contracts and the Uniform Commercial Code, the applica-
bility of this concept in the English court has been more fictional than real. In recent
cases such as Classic Maritime Inc v Lion Diversified Holdings,67 Tandrin Aviation
Holdings v Aero Toy Store68and Gold Group Properties v BDW Trading (formerly
known as Barratt Homes Limited),69 using the Financial Crisis as an excuse to
invoke the doctrine of frustration and/or the force majeure clause have been proved
fruitless. A more fruitful attempt might have been finding faults on the part of coun-
terparty and rescinding the contract as a result. Misrepresentation have been consid-
ered in cases like Springwell Navigation Corp v JP Morgan Chase Bank (formerly
Chase Manhattan Bank)70 and Erlson Precision Holdings Ltd (formerly GG132
Ltd) v Hampson Industries PLC,71 with both incidentally involving financial trans-
actions which were hardest hit amidst the crisis. To sum up, quite clearly the English
contract law has not changed much in response to the Financial Crisis. Certainty
remains the core value over clemency.
66
It provides that: If a contract contains a term which would exclude or restrict – (a) any liability
to which a party to a contract may be subject by reason of any misrepresentation made by him
before the contract was made; or (b) any remedy available to another party to the contract by rea-
son of such a misrepresentation, that term shall be of no effect except in so far as it satisfies the
requirement of reasonableness as stated in Section 11(1) of the Unfair Contract Terms Act 1977;
and it is for those claiming that the term satisfies that requirement to show that it does. The reason-
ableness test as stipulated in Section 11(1) of the Unfair Contract Terms Act 1977 is one that a
contract term shall have been a fair and reasonable one to be included having regard to the circum-
stances which were, or ought reasonably to have been, known to or in the contemplation of the
parties when the contract was made.
67
[2009] EWHC 1142 (Comm).
68
[2010] EWHC 40.
69
[2010] EWHC 323 (TCC).
70
[2010] EWCA Civ 1221.
71
[2011] EWHC 1137 (Comm).
References
Banks J., R. Crawford, T. Crossley, and C. Emmerson. 2012. The effect of the financial crisis on
older households in England in IFS Working Paper W12/09. http://www.ifs.org.uk/wps/
wp1209.pdf. Accessed 11 Oct 2014.
Beale, H. (ed.). 2012. Chitty on contracts. London: Sweet & Maxwell.
Buckley, A. 2011. Financial crisis: Causes, context and consequences. Harlow: Pearson.
Cartwright, J. 2013. Contract law. Oxford: Hart.
Crystal, N., and F. Giannoni-Crystal. 2010. Contract enforceability during economic crisis: Legal
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Domit, S., and T. Shakir. 2010. Interpreting the world trade collapse in Bank of England Quarterly
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quarterlybulletin/qb100302.pdf. Accessed 11 Oct 2014.
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the Czech Republic. The Lawyer Quarterly 4(2): 108–118.
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fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf. Accessed 11 Oct 2014.
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banking crisis. Available at http://www.fsa.gov.uk/pubs/other/turner_review.pdf. Accessed 11
Oct 2014.
Firoozmand, M.R. 2007. Changed circumstances and immutability of contract: A comparative
analysis of force majeure and related doctrines. Business Law International 8: 161–185.
Fraser, S. 2010. The effect of the credit crisis on UK SME finance available at http://www.esrc.
ac.uk/_images/Evidence%20briefing%20-%20finance%20for%20SMEs_tcm8-13957.pdf.
Accessed 11 Oct 2014.
High Level Group of Financial Supervision in the EU. 2009. Report available at http://ec.europa.
eu/internal_market/finances/docs/de_larosiere_report_en.pdf. Accessed 11 Oct 2014.
HM Treasury. 2012. Review of HM Treasury’s management response to the financial crisis. https://
www.gov.uk/government/uploads/system/uploads/attachment_data/file/220506/review_fincri-
sis_response_290312.pdf. Accessed 11 Oct 2014
Hudson, A. 2009. Law of finance. London: Sweet & Maxwell.
McKendrick, E. 2012. Contract law. Oxford: Oxford University Press.
McKendrick, E. 2013. Contract law. Basingstoke: Palgrave Macmillan.
Poole, J. 2012. Textbook on contract law. Oxford: Oxford University Press.
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majeure under German contract law. European Review of Private Law 22(3): 371–391.
Rösler, H. 2007. Hardship in German codified private law – In comparative perspective to English,
French and international contract law. European Review of Private Law 15(4): 483–513.
Thomas, D. 2011. Frustration and force majeure: A hard line in English law. Construction Law
International 6(2): 21–23.
Treitel, G. 2014. Frustration and force majeure. London: Sweet & Maxwell.
Uribe, R.M. 2011. The effect of a change of circumstances on the binding force of contracts.
Cambridge: Intersentia.
List of Cases
Avon Insurance & Ors v Swire Fraser [2000] CLC 665.

AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133.
Baily v De Crespigny (1869) LR 4 QB 180.
Bangladesh Export Import v Sucden Kerry SA [1995] 2 Lloyd's Rep. 1.
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EWHC 86 (TCC).
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Classic Maritime Inc v Lion Diversified Holdings [2009] EWHC 1142 (Comm).
CTI Group Inc v Transclear SA [2008] EWCA Civ 856.
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[2007] EWCA Civ 547, [2007] 2 Lloyd's Rep. 517.
Erlson Precision Holdings Ltd (formerly GG132 Ltd) v Hampson Industries PLC [2011] EWHC
1137 (Comm).
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323 (TCC).
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EWHC 2661 (Comm).
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Walton Harvey Ltd v Walker & Homfrays Ltd [1931] 1 Ch. 274.
Chapter 18
Financial Crisis and the Remedy of Rescission
in the United States
Aditi Bagchi
Abstract Common law contract in the United States does not offer any reliable
avenue by which to rescind a contract as a result of financial crisis. Most formal
doctrines eschew taking into account the economic vulnerability of a party where
that vulnerability is not the product of the contract itself. More generally, the legal
position of parties tends not to turn on their economic resources and market fluctua-
tion is regarded as a foreseeable risk that contracting parties assume. Nevertheless,
a few targeted statutory developments use the possibility of rescission to advance
public policy goals that implicate particular kinds of transactions, such as home
mortgage agreements.
Common law contract in the United States does not offer any reliable avenue by
which to rescind a contract as a result of financial crisis. Most formal doctrines
eschew taking into account the economic vulnerability of a party where that vulner-
ability is not the product of the contract itself. More generally, the legal position of
parties tends not to turn on their economic resources. Nevertheless, a few targeted
statutory developments use the possibility of rescission to advance public policy
goals that implicate particular kinds of transactions.
Contract law in the United States is state law: each of the fifty states in principle
has its own law. That said, each has a variation of the “common law,” which was
adopted from Britain at the time of independence and has evolved, largely in paral-
lel though not in lock-step, across the fifty states. Although there are some impor-
tant differences between the states, in no state are contracts subject to rescission or
revision in the event of financial crisis.
I will discuss the U.S. position on some of the particular questions raised by the
General Reporter and then point out some areas in which regulation of exchange is
arguably responsive to financial crisis indirectly.
This article is also published in the Journal “American Journal of Comparative Law” upon whose
approval, was updated later by the author.
A. Bagchi (*)
Law School, Fordham University, New York, NY, USA
e-mail: abagchi@law.fordham.edu

308 A. Bagchi
In general, in the United States, mistake, misrepresentation and changed circum-

stance are all possible grounds for rescission of contract. However, a party may not
avoid liability under a contract for mistake (either unilateral or mutual) if she
assumed the risk of the fact that later surfaced. Under Restatement (Second) of
Contract Section 154, which is nonbinding but reflects the usual rule, a party will be
deemed to have accepted a certain risk if he was allocated the risk, he is aware, at
the time the contract is made, that he has only limited knowledge with respect to the
facts to which the mistake relates but treats his limited knowledge as sufficient, or
the risk is allocated to him by the court on the ground that it is reasonable in the
circumstances to do so.
Because fluctuation in the economic environment is foreseeable, and because
parties often enter into contract precisely to guard against the variability in price and
inventory associated with economic cycles, courts are unlikely to regard a “mis-
take” related to the economic environment as grounds for rescission. After all,
excusing a party on grounds of such a mistake effectively transfers the loss to the
other party. One could imagine an argument in some cases that the other party was
better informed regarding the probability of an economic downturn, or less likely to
have made a basic cognitive error such as a failure to register that possibility at all.
But the probability of a financial crisis is notoriously uncertain for everyone, and the
range of estimations as to that probability is publically available information.
Excusing less informed or less sophisticated parties on this ground would have the
effect of raising their costs in a wide range of transactions, potentially harming them
in all those more abundant cases where transactions do not run into financial
downturn.
The approach to mistake in US common law is usually formal in that it does not
systematically turn on the status of parties to contract or apply rules in the event of
a financial crisis that cannot be explained by reference to more general principles.
Because formal principles do not support excuse, a party would not be allowed to
avoid contract on grounds of mistake regarding the prospect of a financial crisis.
Parties may also rescind a contract where they relied on a material misrepresen-
tation by the other side.1 Some buyers of mortgage-backed securities have sued a
number of large banks for misrepresenting underwriting standards and seek rescis-
sion, among other remedies.2 Regardless of whether any of these claims succeed,
we could not properly characterize the rescission remedy here as responsive to the
financial crisis per se. Although banking practices were causally related to the cri-
sis, and the motivation of buyers to seek rescission is clearly related to a drop in the
value of their securities, plaintiffs in these suits claim (as they must) that misleading
banking practices justify rescission, and those practices are alleged to justify rescis-
sion whether accompanied by an economic crisis or not. Because misrepresentation
1
Restatement (Second) of Contract §164.
2
See, e.g., Your Guide to the Massive Bank Lawsuits, 9/5/11 Bus. Insider. (describing suit by
Federal Housing Finance Agency against seventeen banks seeking to rescind more than $196 bil-
lion in sales of mortgage-backed securities).
18 Financial Crisis and the Remedy of Rescission in the United States 309
focuses on the conduct of the plaintiff, its successful invocation does not turn on the
general economic climate.
Changed circumstance refers to a cluster of conditions under which courts will
excuse a party for performance, but these doctrines are difficult to invoke success-
fully.3 Even a severe change in general economic circumstance is unlikely to qual-
ify. Neither inability to pay nor a drop in the market value of a purchased good is a
likely ground for excuse under impossibility, impracticability or even frustration of
purpose.4 Because one of the purposes of contract for exchange at a fixed price is to
guard against price fluctuations, the parties are expected to have incorporated the
risk of an economic downturn into their price. Again, the effect of excusing one
party because a change in the economic environment makes her contractual obliga-
tion very burdensome, or has made performance impossible (e.g., due to liquidity
problems), is to transfer that burden to the other party; such a transfer of burden
between private litigants requires affirmative justification. One might argue that
such transfers are justified just where one party is better positioned to bear the loss.
But this proves too much. It is often the case that one party is better able to bear a
loss than the other but this cannot be regarded consistently as grounds for imposing
liability on the former or excusing the latter from liability. Such a policy could not
in principle be limited to cases of financial crisis, since parties are dissimilarly posi-
tioned to bear loss even when the financial climate is positive. A principle that
allows a party to avoid contractual liability because enforcement is more burden-
some for her than uncompensated breach is for the other would have negative reper-
cussions for the reliability of contract, and on the access of weaker parties to
markets. These social costs would extend beyond the duration of a given financial
crisis.
Another ground for invoking the formal remedy of rescission is unconscionabil-
ity. Distortion of the equivalence of exchange is not grounds to avoid liability but it
may contribute to unconscionability, which does excuse performance. An uncon-
scionable contract must be substantively unconscionable, in that its terms must
“shock the conscience.”5 A highly inequitable contract may meet that standard.
However, unconscionability usually also requires procedural unconscionability.6
Procedural unconscionability entails some defect in the process that does not rise to
the level of an independent ground for excuse. For example, highly unequal
bargaining power, the absence of an opportunity to bargain, or a lack of commercial
sophistication may render a contract procedurally unconscionable. A contract that
3
RESTATEMENT (SECOND) OF CONTRACTS §§ 261–72 (discussing impracticability, impossibility and
frustration). See also Trakman (1985) Winner Take Some: Loss Sharing and Commercial
Impracticability, 69 Minn. L. Rev. 472 at 472–73.
4
See Northern Indiana Public Service Co. v. Carbon County Coal Co., 799 F.2d 265, 276–78 (7th
Cir. 1986).
5
See Fransmart, L.L.C. v. Freshii Dev., L.L.C., 768 F.Supp.2d 851, 870–71 (E.D. Va. 2011) (“The
substantive terms of the contract must be so grossly inequitable that it ‘shocks the conscience.”’
(citation omitted)).
6
See Lawrence v. Beverly Manor, 273 S.W.3d 525, 531 (Mo. 2009) (requiring both substantive and
procedural unsconscionability).
310 A. Bagchi
suffers from an uneven equivalence of exchange might plausibly be substantively

and procedurally unconscionable but it will likely not be deemed unconscionable if
it became unconscionable entirely as a result of events that took place after the time
of contract formation.7 Logically, procedural unconscionability, or defects in forma-
tion, cannot be present where the substantive unconscionability, or defects in terms,
arose only after formation. Because the doctrine of unconscionability aims primar-
ily to do equity as between the parties, rather than to redress more general unfair-
ness that might arise in the course of contract, it is of limited utility in responding to
the financial crisis.
Still another open-ended doctrine that one might invoke is the rule that contracts
against public policy are invalid. One might be tempted to argue that contracts that
appear “at odds” with a new economic climate and threaten to exacerbate the prob-
lems of social dislocation and upheaval that attend a financial crisis are against
public policy in a broad sense. But the doctrine does not contemplate voiding con-
tracts because they are in tension with public policy in this broad sense. Judges are
not licensed to identify intuitively plausible public policies and pursue them in an
ad hoc way through the medium of contract enforcement. Such an application of the
public policy doctrine in contract runs into the same problem as did overextension
of other common law doctrines to the case of financial crisis: It threatens to meta-
morphose a narrow doctrine into one that undermines the credibility of many
contracts.
Although the analysis thus far might make it appear that there are few resources
within US common law to respond to the financial crisis, there are several modes of
response. Within the common law itself, there is an increasingly liberal attitude
toward renegotiation. Parties have always been permitted to renegotiate their con-
tracts, and if the obligations of both parties are altered, there is no inquiry into the
circumstances that prompted the modification. Courts will now enforce modifica-
tions even where the obligations of only one party have been altered as long as the
party seeking enforcement of the modification can show a change of circumstance
that justified renegotiation.8 Although changed circumstance is difficult to establish
for purposes of avoiding a contract, it is more easily grounds for renegotiation. If
performance of a contract would result in substantial loss to one of the parties, that
change would qualify as grounds for renegotiation. Thus, though a party could not
be excused from a contract altogether because of financial crisis, even a moderate
economic downturn might render enforceable any modified terms she is able to
extract from the other party.
The more prominent legal response to the financial crisis at the level of individ-
ual contract has occurred in particular subject matter areas. First and most impor-
tant, the centrality of subprime and other mortgages to the crisis focused attention
on the underlying mortgage contract. Remedies that had already been available
7
Restatement (Second) of Contracts §208 (“If a contract or term thereof is unconscionable at the
time the contract is made a court may refuse to enforce the contract.”) (emphasis added).
8
Restatement (Second) of Contracts § 89 (on modification of an executory contract).
18 Financial Crisis and the Remedy of Rescission in the United States 311
became more salient and there have been some political and judicial efforts to make
borrowers’ statutory rights more robust.
The Truth in Lending Act (TILA) grants borrowers who offer a security interest
in their principal dwelling a limited right to rescind loan agreements where the lend-
ers failed to make certain material disclosures.9 In principle, the statutes might be
thought to expand the common law doctrine of misrepresentation, treating certain
nondisclosures as affirmatively misleading in statutorily specified contexts. But
courts have recognized that the statute was intended to stabilize the market for con-
sumer credit, which seemed unduly unstable where large numbers of borrowers
took out loans on terms they did not understand well. Although the statute predates
the most recent financial crisis, it is emblematic of the basic policy response. Many
observers view the crisis as reflecting some kind of market failure. Affording indi-
vidual borrowers relief where lenders have engaged in practices that distort the
market serves both to mitigate the human damage of financial crises as well as to
prevent avoidable escalation of market bubbles.
A second area of contract in which rescission has come under focus in the after-
math of the recession is health insurance. Here, the concern has been with limiting
rather than expanding rescission. The recent and controversial Patient Protection
and Affordable Care Act (PPACA) banned the practice of health insurance rescis-
sion.10 The practice involved insurance companies rescinding insurance for expen-
sive customers (those who had fallen ill and had become heavy users of insurance)
based on conditions that the customer failed to disclose at the time of initial applica-
tion for insurance. In some cases, these pre-existing conditions were not medically
related to the “expensive” conditions that later required expensive treatment, and in
some cases the patients themselves were not aware of them (because they were
minor and did not require action). Like rescission under TILA, rescission in this
context was formally consistent with the common law doctrine, which permits can-
cellation of a contract due to misrepresentation. However, unlike in ordinary con-
tract, insurance companies systematically undertook to investigate insured
applications only after claims were filed, and even innocent misrepresentations
would provide grounds for rescission.
Health insurance rescission was a problem among the individually insured, and
the financial crisis reduced further the percentage of Americans insured through
their employers. The financial crisis thus made more acute what had been a long-
standing policy problem and arguably helped bring about the political impetus to
address it, albeit in large and complex health care reform legislation that intervened
in the health care market in numerous other ways as well.
One final subject matter area in which rescission has been under some scrutiny
has been in the securities markets. Issuers may offer preemptive rescission in order
to avoid investor claims for alternative remedies. All but four states bar civil liability
under state law (outside of fraud claims) if a purchaser received a written offer for
9
See 15 U.S.C. § 1635 (2012).
10
See 42 U.S.C. § 300gg-12 (2012).
312 A. Bagchi
rescission and did not accept it.11 By contrast the federal Securities and Exchange
Commission has decided that, under Section 14 of the Securities Act of 1933 and
Section 29(a) of the Securities Exchange Act of 1934, attempts to immunize oneself
from civil liability by way of a preemptive rescission offer are void.12 However,
violations of Section 5 of the federal Securities Act of 1933 give the purchaser a
one-year right to rescind implicated transactions.
Again in this context, rescission operates as a remedy against those who have
engaged in some form of misrepresentation. In this context, however, the equitable
dimensions of rescission arguably recede in focus as compared to the systemic
implications of the remedy. That is, whether we allow investors to rescind, or allow
issuers to preemptively rescind, importantly shapes the scope of liability under
securities law. On the one hand, those who would see the recession as the fault of
inscrutable practices and possible securities violations would decry any expansion
of rescission at the expense of remedies that are more costly and possibly encourage
more private oversight of company disclosures. But for others, the recession throws
into relief an imperative to reduce company costs generally and ostensibly frivolous
plaintiff suits in particular; a more liberal regime of rescission might reduce plaintiff
suits.
The upshot of this overview is that the United States has little doctrinal response
to financial crisis within the domain of common law contract itself. Some of the
facts relating to the crisis may be grounds for rescission but even a severe economic
downtown is not itself a fact on which the outcomes of contract doctrines will turn,
from a technical standpoint. However, the United States has expanded and delimited
rescission by statute to deal in a targeted way with specific problems, including ones
exacerbated or highlighted by the recent recession. Although our regime has a rigor-
ous commitment to the sanctity of contract, this principle co-exists with an occa-
sionally expansive understanding of what meaningful consent entails as well as a
broad view of the social implications of contract in particular areas.
11
Robert Robbins, Regulation D Offerings and Private Placements, SU032 ALI-ABA 577 (2013).
12
See Stoiber v. SEC, 161 F.3d 745, 753 (D.C. Cir. 1998) (affirming sanctions notwithstanding
defendant’s rescission offer).
Chapter 19
The Adaptation of the Contract in Turkish
Law
Başak Baysal
Abstract Turkish Law has adopted the renowned principle of pacta sunt servanda.
Therefore, the former Code of Obligations numbered 818 did not provide a general
provision for neither the adaptation of the contract and nor the termination of the
contract in case of hardship. Even then, the Court of Cassation and legal scholars
accepted adaptation of contracts in the occurrence of the unexpected event, such as
economic crises. The new Turkish Code of Obligations numbered 6098 which came
into effect as of 1 July 2012 has introduced a general clause for adaption of the
contract. Accordingly, the obligor may demand the adaptation or the revocation of
the contract if adaptation is not possible through meeting all of the required condi-
tions. This chapter presents an overview of the conditions and the consequences of
adaptation of the contract under Turkish Law and specifically analyzes the option
for renegotiation of the contract in comparison to the UNIDROIT Principles (6.2.3),
Principles of European Contract Law (PECL 6:111) and Draft Common Frame of
Reference (DCFR III.-1:110).
This article is published in Turkish in “Symposium of New Turkish Code of Obligations, İstanbul,
2012” edited by Inceoglu upon whose approval, was updated later by the author and translated by
Att. Yasemen Öztürkcan (Istanbul Bar Association) and edited by Att. Işıl Ergeç (Istanbul Bar
Association, Graduate student in Civil Law at Istanbul University). English translation of the arti-
cle is also published in the book “Turkish National Reports to the XIXth Congress of the
International Academy of Comparative Law” edited by Rona Serozan and Başak Başoğlu, and
published by Vedat Kitapçılık upon whose approval, is contributed to this volume.
B. Baysal (*)
Faculty of Law, Istanbul University, Istanbul, Turkey
e-mail: zbbaysal@istanbul.edu.tr

314 B. Baysal
19.1 Introduction
Article 138 of the Turkish Code of Obligations1 in force is a new regulation which
did not take place in the former code. In the law systems of many countries as well
as in international law, there are provisions regarding the change of circumstances
and the adaptation of the contract.2 Constituting a provision in the code regarding
the adaptation of the contract is a crucial development in Turkish Law and one of
the most essential changes handed with the TCO.
According to Article 138 of the TCO; entitled “Excessive Onerosity”3:
When an extraordinary situation which is not foreseen and is not expected to be foreseen by
the parties during conclusion of the contract arises due to a reason not caused by the obli-
gor and if the present conditions during conclusion of the contract are changed to the detri-
ment of the obligor to such an amount as to violate principal honesty and if the obligor has
not discharged his debt yet or has discharged his debt by reserving his rights arising from
excessive difficulty of performance, the obligor shall be entitled to demand from the judge
the adaptation of contract to new provisions, and to withdraw from the contract when such
adaptation is impossible. In contracts including continuous performance, the obligor shall,
as a rule, use his right to termination instead of right to withdraw.
This provision shall also apply to the debts in foreign currencies.
Before the analysis of the provision, we would like to point out the complexity
and multiplicity of terms relating to adaptation of the contract. Amongst the various
terms used in Turkish Law referring to the adaptation of the contract, “excessive
onerosity” was preferred in Article 138 of the TCO.
There is not a common expression in Turkish Law corresponding to the adapta-
tion of the contract. The differences in terms of legal basis, conditions and conse-
quences between the theories of “imprévision”, “clausula rebus sic stantibus” and
“interference with the basis of the transaction” which are often considered as syn-
onyms in Turkish jurisprudence and doctrine, are not emphasized enough.4
Mentioning the issue with different expressions besides of these theories caused a
confusion. In this context, terms like “unexpectedness”, “force majeure”, “hard-
ship”, “modification or termination of the contract by judge”, “adjustment of the
contract” can be given as an example.5 The main reason for the excessive use of
terms is the multiplicity of theories and opinions on the legal basis of the adaptation
of the contract.6 Both for avoiding any discussions on the issue and for using a
1
Here in after referred to as “TCO”. Law numbered 6098 of 11 January 2011. Official Gazette
numbered 27836 of 4 February 2011.
2
For example; Italian Civil Code art. 1467, German Civil Code BGB § 313, Portuguese Civil Code
art. 437/438, Greek Civil Code art. 388, Civil Code of Argentina art. 1198, Brezilian Civil Code
art. m. 478, Algerian Civil Code art. 107, Egyptian Civil Code art. 147. Also UNIDROIT Principles
(PICC 6.2.1-6.2.3), PECL 6:111 and Draft Common Frame of Reference (DCFR III.-1:110).
3
Translated by Özel (2013) Article 138.
4
It is emphasized by the doctrine that these expressions are not synonyms and have major differ-
ences. Draetta and Lake (1996), p. 178.
5
Tunçomağ (1967), p. 887.
6
Hausheer and Jaun (2003) ZGB Art. 2 N. 114.
19 The Adaptation of the Contract in Turkish Law 315
general term without referring to any theory, the adaptation of the contract will be
used throughout the study.
The adaptation of the contract constitutes an exception for the principle of pacta
sunt servanda. Indeed the main principle of Contract Law asks the contracting par-
ties to be bound with the contract and to fulfil their contractual obligations even if
there appear difficulties after the conclusion of the contract. However, changes that
arise after the conclusion of the contract might make the fulfilment of the obliga-
tions extremely unbearable, in which case, pressing the parties might be injust
towards the aggrieved party which would as well violate principle of good faith
covered in Article 2 of the Turkish Civil Code.7 Already prior to the entering into
force of Article 138, Turkish Court of Appeal and the doctrine acknowledged that,
in such cases, insisting on the fulfilment of the contractual obligations would violate
principle of good faith and that the contract should be adapted.8 Therefore, the legal
basis of the adaptation of the contract is principle of good faith, as is accepted in the
comparative law.
In order for a better comprehension of the new provision, before the analysis of
the conditions and the consequences of Article 138 of the TCO, the practice of the
adaptation of the contract prior to the entering into force of the TCO should be
examined.
19.2 Adaptation of the Contract Prior to the Entering

into Force of Article 138 of the TCO
In order to understand the practice related to the adaptation of the contract and the
constitution of this provision, the need for the use of such concept in the law system
should be determined in the first place. The main reason is the recent major eco-
nomical crisis in Turkey and its negative effects on the debts in foreign currency.
The last paragraph of Article 138, which explicitly states that the principle set forth
by this Article for the adaptation of the contract applies as well to the debts in for-
eign currencies, indicates the tendency of seeking for solutions to the unfair conse-
quences caused by this economical crisis. With the effects of the aforementioned
economical crisis, the adaptation of the contract became a current issue especially
for the loan agreements and lease agreements in Turkish law. The positive attitude
of the courts towards the adaptation of the lease contracts unfortunately was replaced
7
Law numbered 4721 of 22 November 2001. Official Gazette numbered 24607 of 8 December
2001.
8
Turkish Court of Cassation (Hereinafter referred as “Y.”) General Assembly of Civil Chambers
(Hereinafter referred as “HGK”), E. 2203/13-332, 2003/340, T. 7.5.2003; YHGK, E. 2003/13-599,
2003/599, T. 15.10.2003, YHGK E. 2010/14-14, K. 2010–15, T. 27.1.2010; YHGK 1998/815,
1998/835, T. 18.11.1998, Schwarz (1944), pp. 186–202; Feyzioğlu (1947); Gürsoy (1950); Erman
(1979); Tekinay et al. (1993), pp. 783–784; Burcuoğlu (1995), p. 41 ss.; Serozan (2014), § 20;
Oğuzman and Öz (2010), p. 156; Baysal (2009), p. 89 ff.
316 B. Baysal
with a more solid understanding when it comes to loan contracts. This inconsistent
approach in jurisprudence has increased the need to specify objective criteria for the
adaptation of the contract.
In recent years, the number of the decisions of the Court of Appeal related to the
adaptation of the contract largely increased. As a result of every economical crisis,
numerous events were appealed and the Court of Appeal put forth some principals
for the contracts affected by the economical crisis. Nevertheless, there is not a con-
sistent approach to the adaptation of the contract. The most stunning example in this
regard is the Courts considering the economical crisis as an unexpected situation
and not hesitating to apply the adaptation of the lease contracts, however when it
comes to the loan agreements, not reacting so.9 This approach of jurisprudence has
been rightly criticized by the doctrine.10 Regarding the disputes related to the loan
contracts in recent years, the Court of Appeal pays special attention to the charac-
teristics of the banks as criteria to be taken into account in the adaptation of the
contract.11 The Court of Appeal considers the good faith of the banks suggesting
their clients refund of the credit payments in Turkish Liras another reason not to
apply the adaptation of the contract.12 In fact, the main problem for the post eco-
nomical crisis period regarding the credit indexed contracts is the extraordinary
increase in the foreign currency and therefore, the suggestion of conversion into
Turkish Liras would not be a satisfying solution for the obligor.
Nevertheless, the decisions of the Court of Appeal cover the theory of interfer-
ence with the basis of the transaction more in depth. In this regard, the Court of
Appeal broadens the scope of this theory by not limiting it to the contracts of Law
of Obligations, rather including as well the contracts of Family Law regarding ali-
mony and contribution to be calculated in the regime of separation of property after
divorce.13 Besides, the Court of Appeal also accepted that the adaptation of short-
term contracts is valid.14 In the meantime, we should point out a fact not to be for-
gotten: The duration of the long-term contracts increase the probability of the
unforeseen events to occur and the parties concluding long-term contracts should
9
Y. 11. Civil Chamber (Hereinafter referred as “HD.”) 12.12.1994, E. 1994/5786, K. 1994/9585;
For another decision of the Court of Appeal in this matter stating that the special conditions of the
banks should be taken into consideration regarding the adaptation of the contract, see Y. 11. HD.
01.04.2002, E. 2001/10794, K. 2002/2870; On the other hand, for another decision accepting the
adaptation of the foreign exchange credit loan contract, see Y. 13. HD. 06.04.1995, E. 1995/145,
K. 1995/3339.
10
Burcuoğlu (1995), p. 41 ff.; Burcuoğlu (1996), p. 76 ff.; Baykal (1998), pp. 231–265; Serozan
(2014) § 20 N. 10; Baysal (2009), p. 74 ff.
11
Y. 11. HD. 01.04.2002, E. 2001/10794 K. 2002/2870, YHGK, 19.02.1997, E. 1996/11-762, K.
1997/77, YKD 1997/5, pp. 681–682; YHGK 19.02.1997, E. 1996/11-674, K. 1997/87.
12
YHGK 17.09.1997, E. 1997/11-460 K. 1997/651; Y. 11. HD. 01.04.2002, E. 2001/10794 K.
2002/2870.
13
Oktay-Özdemir (2007), pp. 980–993; Y. 3. HD. E. 2005/5426, K. 2005/5859, T. 26.5.2005; Y. 3.
HD. E. 2003/6477, K. 2003/6152, T. 20.5.2003, also see Y. 3. HD. E. 2003/1941, K. 2003/2097, T.
4.3.2003; Y. 3. HD. 07.10.2004, E. 2004/11065, K. 2004/10658).
14
YHGK 30.10.2002 E. 2002/13-852, K. 2002/864, Yargı Dünyası, Şubat 2003, N. 86, pp. 38–43.
take into consideration the risks. In the short-term contracts, in contrast, the
probability to foresee such events is higher but the responsibility of the parties to
take into consideration the risks are lower. As long as this comparison of short-term
and long-term contracts is regarded, the duration of the contract should not be con-
sidered as an additional condition in order to apply the adaptation of the contract.
This additional condition requires a subjective evaluation; what would be the crite-
ria to determine whether a contract is short-term or not? For example, regarding the
adaptation of the contract, one year might be considered short for lease contract but
long for credit contract. This would apparently lead to indefinite and arbitrary
consequences.
Having pointed out to the principles accepted by the doctrine and the decisions
of the Court of Appeal for the period prior to the entering into force of Article 138
of the TCO, we can now examine the conditions set forth in the mentioned provi-
sion for the adaptation of the contract.
19.3 Conditions of TCO Article 138
The conditions specified in Article 138 of the TCO for the adaptation of the contract
are listed as follows in the preamble of the provision:
1. An extraordinary event which is unforeseen and not expected to be foreseen by
the parties during conclusion of the contract must have occurred;
2. This situation should have arisen due to a reason not caused by the obligor;
3. This situation must have changed the present conditions during conclusion of the
contract to the detriment of the obligor to such an amount as to violate the prin-
ciple of good faith.
4. The obligor must have not discharged his debt yet or have discharged his debt by
reserving his rights arising from excessive difficulty of performance.
5. Each of the conditions will be explained briefly.
19.3.1 Unforeseeability
Unforeseeability is the main condition for the adaptation of the contract. The
extraordinary event in question should be unforeseen by the parties during conclu-
sion of the contract. When one foresees an event, it is not possible to state that this
person does not have the option to choose. In the case where one foresees or is
expected to foresee an event, this event and its consequences would be amongst the
chain of thoughts leading this person to make choices. Therefore, that person should
bear the consequences of her/his choice and thus the conclusion of the contract,
since such event would no longer be counted as an external factor.
318 B. Baysal
Parties cannot consider every probability during conclusion of the contract.

However, in some cases, the parties have to bear the consequences of an event
unforeseen by them and cannot demand from the judge the adaptation of the con-
tract to new provisions. In these cases, the parties are expected to foresee the event
and take into account its consequences and in this sense, such events are considered
to be “foreseeable”. Article 138 of the TCO explicitly states that the extraordinary
situation in question should be “not foreseen and not expected to be foreseen by the
parties during conclusion of the contract”. Therefore, the situations covered by the
provision are not only the events unforeseen but also the events not expected to be
foreseen by the parties. In other words, even if the parties do not foresee such event
but it is expected to be foreseen by them, they cannot demand the adaptation of the
contract. For example; following the major economical crisis in our country, the
doubtful approach of the Court of Appeal towards unforeseeability is easily spotted
in its decisions, an excerpt from one of which is as follows15:
It is a known fact that devaluation and economical crisis do not occur at once, they occur
following some financial bottleneck. Those who conclude a contract and incur debt in for-
eign currency instead of Turkish currency which constantly loses value against foreign
currency should foresee such increase, looking at the history of the currencies in our coun-
try, and the defendant should expect the upcoming change.
Another issue that is often raised in the decisions of the Court of Appeal needs to
be pointed out under this section. It is a really problematic issue whether the mer-
chant can or cannot demand the adaptation of the contract. Does liability for the due
care and diligence of a prudent Merchant (Article 18 of the Turkish Commercial
Code16) mean that trader can foresee every situation?
The Court of Appeal consider the “liability for the due care and diligence of a
prudent merchant” in the case where the party who demands the adaptation of the
contract is merchant. In the decisions of the Court of Appeal, in comparison with
non-merchants, merchants are subject to a stricter evaluation regarding state
changes, subsequent developments, examples of which can be listed as follows: The
Merchant “should know the authorities of the Ministry of Finance to allocate for-
eign currency better than anyone else and act like a prudent and cautious
merchant”17; “merchant must act like a prudent business man in the case of low
production and should have stored up the raw materials in advance”.18
Beside these particular situations, the Court of Appeal generally applies strict
criteria to merchants especially about foreseeability of the unstable economic situa-
tion. The demands for the adaptation of the contract of the merchants concluding
contracts covering debts in foreign currency are often rejected because of the lack
of unforeseeability.19
15
Y. 13. HD. 9.6.2005, E. 2005/1874, K. 2005/9749.
16
Law numbered 6102 of 13 January 2011. Official Gazette numbered 27846 of 14 February 2011.
17
YHGK., 18.4.1984 T., E. 11–139, K.426 (Uygur 2003, pp. 4029–4030).
18
Y. 15. HD., 2.6.1987 T., E. 26, K.2433 (Uygur 2003, art. 117, pp. 4031/4032).
19
YHGK 15.10.2003 E.2003/13-599 K. 2003/599; YHGK 07.5.2003 E. 2003/13-332, K. 2003/340;
Y. 13. HD. 28.6.2004, E. 2004/2610, K. 2004/10082, Y. 13. HD. 23.9.2003, E. 2003/5912, K.
It seems that the Court of Appeal takes into consideration only whether the
contracting party is merchant or not. The decisions of the Court of Appeal reveal the
fact that an abstract evaluation is done and that the subjective features of the con-
tracting parties are not taken into consideration. Nevertheless, liability for the due
care and diligence of a prudent merchant, which originates from being a merchant,
should not be the only criterion to be considered in the decisions of the Court of
Appeal. When carrying out an abstract evaluation, the adaptation of the contract
would not be possible if the contracting party to the detriment of whom the present
conditions during conclusion of the contract are changed did not foresee the event
whereas a reasonable man would foresee. In the case where the adaptation of the
contract is demanded by the merchant contracting party, being a merchant would
surely be considered as a criterion but the demand should not necessarily be rejected
for this reason. As a matter of fact, if another merchant under the same circum-
stances might not have foreseen the changed conditions either, being a merchant
would not be considered as the reason for the lack of the condition of
unforeseeability.
A significant disadvantage of the abstract evaluation is, if it is done in a strict
manner, to come to the conclusion that everything is foreseeable. A way to prevent
this result would be to regard the subjective features of the parties and the circum-
stances of the present case during the abstract evaluation. The features of a reason-
able man and how this reasonable man would react under the same circumstances
as the contracting parties should be determined by taking into consideration the
characteristics of the party demanding the adaptation of the contract. For example;
in the case where a merchant demands the adaptation of the contract, the character-
istics and the knowledge of that merchant who acts reasonable and exercises due
diligence should be regarded instead of those of any merchant who is expected to be
liable for due care and diligence of a prudent merchant.
Another problem is how the economical situation of the contracting parties
should be taken into consideration about the assessment of risk sharing and
unforeseeability.
In our opinion, economical and social situation of the parties can be a criterion
only for the abstract evaluation of unforeseeability. The evaluation should always
be carried out looking at whether a reasonable man of the same features as the
aggrieved party can foresee the changing conditions or not. In other words, the eco-
nomical situation and the personal features of that person should not be taken into
consideration. Especially the economical situation of the parties can only be a sec-
ondary criterion regarding foreseeability. Subjective economical and social situa-
tion of the parties does not necessarily mean that they are to undertake the risks
related to the contract. Therefore, a party having good economical situation does
not have to undertake the risk. The fact that a contractor works in a big and market-
dominant firm would lead her/him to take into consideration the risks and thus
2003/10490; Y. 13. HD. 3.7.2003, E. 2003/4607, K. 2003/9022; Y. 13. HD. 10.6.2003, E.

2003/3622, K. 2003/7636.
320 B. Baysal
foresee better, not undertaking the risk because of her/his good economical situation,
compared to an average contractor.
Another important question to be answered is the scope of foreseeability during
conclusion of the contract. For example; the event itself might be foreseen but the
extent of its consequences might not be; the possibility of the outbreak of a war or
of an economical crisis might be foreseen during conclusion of the contract but the
duration of the war or the economical crisis and its severity might not be. In the case
where an event is foreseeable however its consequences are huge in an extraordi-
nary way, such event is considered to fulfil the condition of unforeseeability in the
Turkish doctrine.20 For this reason, it would be better to express the unforeseeability
of the effects of the changed situation to the contract, rather than the unforeseeabil-
ity of the situation itself.
Whether the situation is foreseeable should be determined by the present condi-
tions during conclusion of the contract. On the other hand, what happened prior to
the conclusion of the contract is also of importance. If the change occurred after
conclusion of the contract did not happen for a long time prior to the conclusion of
the contract, this fact might provide an important data regarding unforeseeability.
For example; a sudden rise in coal prices after conclusion of the contract while the
prices had a steady uptrend in the last 20 years, might be accepted unforeseeable.
Another significant criterion might be the market situation during conclusion of
the contract. It may be difficult to say that the situation is unforeseeable regarding a
contract concluded during an economical crisis in the case where this economical
crisis increasingly continues. As stated in the decision mentioned above, if you live
in a country where economical crisis occurs frequently, you would probably
foresee.
The last criterion regarding the condition of unforeseeability is an extraordinary
event to occur. However, this issue is quite problematic in the doctrine.21 Further
information on this discussion is out of the scope of this work but it is noteworthy
that the decisions of the Court of Appeal are in accordance with this last criterion.
The Court of Appeal clearly seeks the “extraordinary changes” in many of its deci-
sions for the adaptation of the contract.22 However, such extraordinary changes
should not exclusively refer to disasters as earthquake or flood affecting the entire
community, whether these changes are extraordinary for the contracting parties
should also be considered.
20
Erman (1979), pp. 80–81; Tandoğan (1989), pp. 241–242; Arat (2006), p. 105.
21
Baysal (2009), pp. 161–162.
22
YHGK 19.02.1997 E. 1996/11-762, K. 1997/77 in YKD 1997/5, s.681-682; YHGK, 18.11.1998,
E. 1998/13-815, K.1998/835, Yasa 2000/1, p. 66 ff.
19.3.2 The Situation Should Have Arisen Due to a Reason Not

Caused by the Obligor
In order for the aggrieved party to have the right to demand the adaptation of the
contract, the situation resulting from the unexpected event which occurred after
conclusion of the contract should not have arisen due to a reason caused by the
obligor.23 If the party who claims to be aggrieved because of the change of circum-
stances has an effect on the change which occurred following conclusion of the
contract, this party cannot demend the adaptation of the contract.
The condition that the unexpected event should have arisen due to a reason not
caused by the obligor is technically broader than fault. The aggrieved party should
not have caused the situation, given rise or had an effect on it.24 This condition is
also covered under Article 138 of the TCO. It is stated in the provision that the
change in the circumstances “arises due to a reason not caused by the obligor”. It
is appropriate to prefer such expression instead of the term “fault”. Nonetheless,
there is a point to be criticized in the expression of “arises due to a reason not
caused by the obligor”. It is misleading that the provision mentions only “obligor”;
the article is wrongly regulated in the manner as if the creditor cannot be the
aggrieved party because of the change of circumstances, cannot demand the adapta-
tion of the contract or can demand the adaptation of the contract despite the change
of circumstances which is attributable to him. However, it has been accepted since
many years in the Turkish jurisprudence that both obligor and creditor can demand
the adaptation of the contract.25 Moreover, the adaptation of lease contracts has been
accepted primarily in favor of lessor in the decisions of the Court of Appeal.26
Hence the need of the adaptation of the contract can be also raised by the credi-
tor. Therefore, it would be more appropriate if the term of aggrieved party (la partie
lesée, benachteiligte Partei) was used instead of creditor or obligor.27 Nevertheless,
it is possible to read the provision in this manner since it cannot be expected that
Article 138 of the TCO was regulated as falling behind the decisions of the Court of
Appeal.
23
Serozan (2014), § 20 N. 8; Tekinay et al. (1993), p. 368, 1007; Arat (2006), p. 135; Kaplan
(2007), pp. 150–151; Erman (1979)), p. 85 ff.; Jäggi and Gauch (1980) Art. 18 OR N. 673; Bischoff
(1983), p. 216; Merz (1966) in Berner Kommentar Art. 2 ZGB, N. 227; Deschenaux (1942),
pp. 509a–636a, p. 558a ff.
24
Kramer and Schmidlin (1986) in Berner Kommentar Art. 18 OR N. 342; Deschenaux (1942),
p. 559a.
25
YHGK, E. 2003/13-332, 2003/340, T. 7.5.2003; YHGK, E. 2003/13-599, 2003/599, T.
15.10.2003.
26
Y. 13. HD. 12.2.1981, E. 1981/147, K. 1981/932, YKD 1982, p. 1561 ff.
27
Cf. BGB § 313, PICC 6.2.2, PECL 6:111. The party “against whom the balance of benefits is
reversed” is also mentioned in some decisions of the Court of Appeal. Y. 11. HD., 4.11.1984 T., E.
4170, K.4731 (Uygur 2003, p. 292 vd.), this expression is also proper, however the term of
“aggrieved party” is not only more brief but also commonly used in comparative law.
Burcuoğlu (1995), p. 29 ff.
322 B. Baysal
The condition that the aggrieved party should not have contributed to the
unexpected event is seeked for in two stages. The aggrieved party should not have
an effect on the change of circumstances and should act carefully after the change
of circumstances occurs. First of all, the aggrieved party should notify the other
party regarding the hardship because of the change of circumstances without delay.28
The notification should be made before the change of circumstances becomes exces-
sively onerous; otherwise, the aggrieved party would be contributing to the oneros-
ity of the change of circumstances.29 Unless the notification is made, the aggrieved
party bears the risk of the change of circumstances that has become onerous. In this
regard, a question that comes to mind is whether the contracting party can demand
the adaptation of the contract in case of default. The common opinion is that the
contracting party is not able to demand the adaptation of the contract in case of
default.30 No matter whether it is the default of the creditor or obligor, the party
demanding the adaptation of the contract should not be in default.31 On the other
hand, it is stated in the doctrine that the defaulting party might demand the adapta-
tion of the contract if there is not fault for default.32 Such interpretation would be in
compliance with Paragraph 2 of Article 119 of the TCO.
19.3.3 This Situation Must Have Changed the Present

Conditions During Conclusion of the Contract
to the Detriment of the Obligor to Such an Amount
as to Violate the Principle of Good Faith
This condition specified in Article 138 of the TCO is qualified as the condition of
unexpectability of performance.33 As a result of change of circumstances after con-
clusion of the contract, the performance should be unexpectable from one of the
parties in the light of the principle of good faith so that the adaptation of the contract
can be demanded. The degrees of unexpectability of performance by the aggrieved
party are significant also in terms of the consequences of Article 138 of the TCO. If
the performance of the contract cannot be expected even in the case of its adapta-
tion, the contract should be withdrawn. If apparently the performance cannot be
expected from the aggrieved party because of the change in circumstances, Article
138 of the TCO applies. After this phase, if the conclusion that the performance
28
Erman (1979), p. 89.
29
Deschenaux (1942), p. 561a.
30
Jäggi and Gauch (1980) Art. 18 OR N. 674; Kramer and Schmidlin (1986) in Berner Kommentar
Art. 18 OR N. 344; Bischoff (1983), pp. 218–219; Merz (1966) in Berner Kommentar Art. 2 ZGB
N. 227; Tercier (1979), p. 208; Deschenaux (1942), p. 561a ss; Larenz (1963), p. 139.
31
Jäggi and Gauch (1980) Art. 18 OR N. 674.
32
Jäggi and Gauch (1980) Art. 18 OR N. 674 Kramer and Schmidlin (1986) in Berner Kommentar
Art. 18 OR N. 344; Bischoff (1983), p. 219.
33
Baysal (2009), p. 190 ff.
might be expected after adaptation of the contract can be drawn, the adaptation
should be done and if that is not possible, the contract should be withdrawn. Thus,
in Article 138 of the TCO, it is emphasized expressly that the obligor is “entitled to
demand from the judge the adaptation of contract to new provisions and to with-
draw from the contract when such adaptation is impossible”. The expression “when
such adaptation is impossible” refers to the possibility where the performance can-
not be expected due to the principle of good faith even after adaptation of the con-
tract. In that case, the only way to provide a fair risk share again is the termination
of the contract.
The Court of Appeal considers onerosity of performance as a criterion.34
19.3.4 The Obligor Must Have Not Discharged His Debt Yet or
Have Discharged His Debt by Reserving His Rights
Arising From Excessive Difficulty of Performance
It is a problematic issue that whether a performed contract can be adapted or not.35

The common opinion in the doctrine is that in order to accept the adaptation of the
contract, the obligations should not have been performed yet.36 The decisions of the
Court of Appeal are in accordance.37
“The performance of the obligation already demonstrates that there is not
hardship”.38 It is asserted that performing the obligation eliminates the option of the
adaptation of the contract; the obligor accepts both the existence of the obligation
and that performance can be expected despite the change of circumstances.
In our opinion, the performance of contract does not indicate that there is not
hardship. It would be easier to comprehend recognizing the fact that the adaptation
of the contract can be demanded not only by the obligor but also by the creditor. In
the case where the creditor demands the adaptation of the contract (e.g. demanding
the adaptation of the rental), she/he would continue performing her/his obligation
(e.g. allowing lessee to use the rented thing). The adaptation of the contract by the
creditor is accepted in Turkish Law.39 Just because the obligation is performed by
the creditor does not necessarily indicate that the performance has not become oner-
ous for her/him. In some cases, the adaptation of the contract is the only just way
despite the performance of the contract. In our opinion, the only valid criterion, in
this context, for the adaptation of the contract is to determine the moment from
34
YHGK 1.10.1997, E. 1997/13-493, K. 1997/87.
35
Baysal (2009), p. 111 ff.
36
Eren (2014), p. 441; Bischoff (1983), p. 220.
37
Y. 13. HD. 21.04.2003, E. 2002/15326, K. 2003/4726, (in: İBD 2003, pp. 805–809, (p. 809)).
38
Burcuoğlu (1995), p. 12; Arat (2006), p. 123; Kaplan (2007), p. 153.
39
Burcuoğlu (1995), p. 13.
324 B. Baysal
which the non-adapted performance can no longer be expected from the aggrieved
party based upon the principle of good faith.
The opinion that the performed contract can only be adapted on specific condi-
tions was accepted in Swiss-Turkish Law in order to reach a common ground and
prevent inequitable situations. According to this opinion, the adaptation of the con-
tract is possible only if the performance is realized by reserving the rights arising
from excessive difficulty of performance.40 This opinion was suggested in order to
protect particularly the weaker party; in other words, it was acknowledged taking
into consideration the individuals who suffered from economical crisis in our coun-
try. Article 138 of the TCO is based on this opinion as explicitly as “if the obligor
has not discharged his debt yet or has discharged his debt by reserving his rights
arising from excessive difficulty of performance”.
Since we are of the opinion that a performed contract can be adapted, we do not
seek for any conditions as the one indicated in the provision. Moreover, it would not
be practical to also look for whether the performance is realized by reserving the
rights arising from excessive difficulty of performance, while checking if the adap-
tation of the contract can be done is already complicated. The adaptation of a per-
formed contract in a strict sense should be done very carefully. Nevertheless, if the
injustice arising due to the change of circumstances, the conditions of the present
case and the status of the contracting parties indicate excessive difficulty of perfor-
mance despite the performance done, the adaptation of the contract in a strict sense
should be considered possible. If, in the present case, the performance after the
change of circumstances requires unbalanced sacrifice, the fact that the performance
is done should not prevent the adaptation of the contract. As a principle, in order for
the adaptation of a performed contract, it should be accepted that the obligor can
only use her/his right to termination instead of right to withdraw. However, in
exceptional cases, the obligor can use the right to withdraw (rückwirkende
Vertragsanpassung) while demanding the adaptation of the contract which would
change the content of the contract.41
19.4 Consequences of TCO Article 138
19.4.1 General Overview
If the above mentioned conditions are satisfied, pursuant to Article 138 of the TCO,
the obligor – it shall be read as the aggrieved party – has the right to demand from
the judge the adaptation of the contract to new provisions or withdrawal from the
contract when such adaptation is not possible. Carefully read, the provision
40
Burcuoğlu (1995), p. 13; Arat (2006), p. 124; Kramer and Schmidlin (1986) in Berner Kommentar
Art. 18 OR N. 345; Jäggi and Gauch (1980) Art. 18 OR N. 675; Bischoff, p. 219.
41
Larenz (1963), p 137 ff., Jäggi and Gauch (1980) Art. 18 OR N. 676; Kramer and Schmidlin
(1986) in Berner Kommentar Art. 18 OR N. 345; cf. Bischoff (1983), p. 220.
prioritizes the adaptation of the contract and the option to withdraw from the
contract is accepted only if the adaptation of the contract is impossible.
19.4.2 Is It Obligatory to Demand the Adaptation

of the Contract from the Judge?
Regarding the provision, the most problematic issue is probably whether it is oblig-
atory to demand from the judge the adaptation of the contract.
This discussion should better be mentioned. There are two consequences of
Article 138 of the TCO; the contract can be either adapted or withdrawn. The with-
drawal from the contract, as it is accepted, is so called (Yenilik doğuran hak –
Gestaltungsrecht-right to establish alter or terminate a legal transaction) and it does
not have to be addressed to the courts. To this respect, the conclusion that the adap-
tation of the contract as one of the consequences of Article 138 of the TCO should
be demanded from the judge and on the other hand, the withdrawal from the con-
tract does not have to be demanded from the judge might be drawn. However, it
would be conflictual to accept that the two consequences of demanding the adapta-
tion of the contract have different legal characteristics. Therefore, in the doctrine, it
is stated that a severe sanction as withdrawal from the contract not requiring to be
demanded from the judge and on the other hand, a less severe sanction as adaptation
of the contract requiring to be demanded from the judge is inconsistent.42 The two
consequences are not completely different; withdrawal from the contract, in fact, is
the most severe form of the adaptation of the contract; moreover it is named, in the
doctrine, as “adaptation to zero” (Anpassung auf Null).43 In our opinion, the right to
demand the adaptation of the contract should be accepted as a Yenilik doğuran hak
(Gestaltungsrecht-right to establish alter or terminate a legal transaction) for both of
the consequences of Article 138 of the TCO.
19.4.3 Whether Renegotiation of the Contract Is Compulsory

for the Parties Within the Scope of TCO Article 138
Renegotiation of the contract is recently accepted as one of the consequences

regarding the adaptation of the contract in European Contract Law. There are provi-
sions regarding renegotiation of the contract in UNIDROIT Principles (6.2.3),
Principles of European Contract Law (PECL 6:111) and Draft Common Frame of
Reference (DCFR (III.-1:110).44
42
Atamer (2006), p. 16.
43
Fikentscher (1971), p. 107.
44
For the discussions regarding CISG art. 79 also see Baysal (2009), p. 71 ff.; Atamer (2005),
p. 463 ff.; Dewez et al. (2011), pp. 101–154.
326 B. Baysal
According to Article 6.2.3. of PICC which includes the consequences of

hardship:
(1) In case of hardship the aggrieved party is entitled to request renegotiations. The
request shall be made without undue delay and shall indicate the grounds on
which it is based.
(2) The request for renegotiation does not in itself entitle the aggrieved party to
withhold performance.
(3) Upon failure to reach agreement within a reasonable time either party may
apply to the court.
(4) If the court finds hardship it may, if reasonable,
(a) terminate the contract at a date and on terms to be fixed; or
(b) adapt the contract with a view to restoring its equilibrium.
According to Article 6:111 of PECL:
(2) (…) If, however, performance of the contract becomes excessively onerous
because of a change of circumstances, the parties are bound to enter into nego-
tiations with a view to adapting the contract or terminating it. (…)
(3) If the parties fail to reach agreement within a reasonable period, the court may:
(a) terminate the contract at a date and on terms to be determined by the court; or
(b) adapt the contract in order to distribute between the parties in a just and equitable
manner the losses and gains resulting from the change of circumstances.
In either case, the court may award damages for the loss suffered through a party
refusing to negotiate or breaking off negotiations contrary to good faith and fair
dealing.
Pursuant to the DCFR III.-1:110, renegotiation is one of the conditions of the
adaptation of the contract to new provisions. According to this provision, if the
judge decides that the renegotiation is not being performed reasonably and not in
compliance with the principle of good faith, she/he can avoid to render a verdict
regarding the adaptation of the contract or withdrawal from the contract, by which
way she/he would lead the parties to renegotiate reasonably and in compliance with
the principle of good faith.
Pursuant to the harmonization of European Contract Law, at the time the adapta-
tion of the contract is demanded from the judge, the renegotiations should have
done, however the parties should not have succeeded to renegotiate reasonably.
Moreover, according to PECL, the judge may also determine compensation in the
case where the renegotiations are not performed reasonably.45
As regards to Turkish law, neither the Court of Appeal nor the legislator
expressed at all the renegotiations, as if they are unaware of the subject matter.
45
For the discussions regarding the juridical nature of duty of renegotiation also see Baysal (2009),
p. 233 ff.
On the other hand, Article 138 of the TCO does not exclude renegotiation. In our
opinion, renegotiation shall be performed not to violate principle of good faith
which is, in fact, the legal ground of the provision.46
In order for the party requesting the adaptation of the contract to be considered
fulfilled her/his duty of renegotiation; first of all she/he should notify the other party
regarding the change of circumstances and its effects on the contract. This notifica-
tion should include the proposal for renegotiation as well. This duty should be con-
sidered fulfilled in the case where the addressee refuses to negotiate or if it is certain
that no result can be achieved by negotiations in the light of principle of good faith.
In case the negotiations start, they should be held in accordance with principle of
good faith so that the renegotiation would be counted fulfilled. The party holding
the right to demand the adaptation of the contract should do her/his best regarding
this matter. It is in compliance with the Turkish law system that the parties should
perform the duty of renegotiation, which is the last chance to reconciliate the parties
without the adaptation of contract. The legal ground of the duty of renegotiation is
principle of good faith in comparative law as well. The principle of good faith, in
the first place, should lead the parties facing difficulty in performing the contractual
obligations to come together and to seek a solution. Therefore, we are of the opinion
that the parties shall come together in order to fulfil the duty of renegotiation prior
to the adaptation of the contract. In our opinion, acting contrary to the mentioned
duty would eliminate the right to demand the adaptation of the contract, which
would constitute a sanction.
To sum up our opinion regarding the consequences of Article 138 of the TCO,
the aggrieved party who suffers because of the change of circumstances after con-
clusion of the contract has the right to demand the adaptation of the contract to new
provisions by unilateral declaration (Yenilik doğuran hak - Gestaltungsrecht-right to
establish alter or terminate a legal transaction). However, in order for the aggrieved
party to exercise this right, she/he should primarily renegotiate with the other party.
This is not an obligation for the aggrieved party, rather it is her/his duty. If the
aggrieved party does not act according to this duty, she/he will not be asked for
compensation; nevertheless, she/he can no longer demand the adaptation of the con-
tract. In case the adaptation of the contract is not possible, withdrawal from the
contract would be the solution.
46
In Turkish Law, Gürsoy is of the opinion that the aggrieved party should propose negotiation by
notifying the other party before she/he exercises a yenilik doğuran hak regarding the adaptation of
the contract; according to the author, in the case where the aggrieved party does not make the
notification, this can be excused only if it is certain that the proposal for negotiation would be
rejected or negotiation is not possible because of hardship. Gürsoy (1950), p. 173.
328 B. Baysal
19.5 Conclusion
To sum up the adaptation of the contract, it reveals a problem of sharing the risks.
Who will bear the risk arising from the change of circumstances? Article 138 of the
TCO does not take us further than the decisions of the Court of Appeal. Accordingly,
the question that comes to mind is what the subject provision would contribute to
Turkish Law. The adaptation of the contract, constituting an exception for the prin-
ciple of pacta sund servanda, changes the basis of Contract Law. Since the adapta-
tion of the contract is covered explicitly in the TCO, significant consequences will
be faced. The contracting parties should not interpret the provision as they have the
right to demand the adaptation of the contract for every problem they face. The
criteria for the adaptation of the contract should be objective and should not lead to
misconception as repealing the principle of pacta sunt servanda. Article 138 of the
TCO does not specify objective criteria, rather includes general expressions; there-
fore the wording will be improved by practice. In order to enable the correct imple-
mentation of Article 138 of the TCO not violating the basic principles of Law of
Obligations, the courts should render verdicts taking into consideration the prob-
lems raised in the doctrine regarding the provision. It should not be forgotten that
although the tendency is to regulate in the codes the adaptation of the contract
increased recently, objective criteria is being adopted by the courts in many coun-
tries. Article 138 of the TCO does not prevent objective criteria to be adopted.
Substantially, it takes us to another discussion regarding this topic: Is the tendency
to regulate in the codes the adaptation of the contract appropriate? In our opinion,
the judge should consider the adaptation of the contract in accordance with substan-
tial justice and the adaptation of the contract should be improved by means of
precedents.
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19.5.1 List of Cases
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Index
A Convention on International Sales of Goods

Adaptation (adjustment) of the contract, (CISG), 16, 147, 164, 325
314–328 Coronation cases, 12, 13
Alteration of the circumstances, 27, 92, 93, 95
Aufopferungsanspruch, 5, 23, 25
D
Damages, 44, 87, 97, 127, 128, 133, 194,
B 206, 215, 239, 271, 275, 279, 296,
Basis of the contract doctrine (Wegfall der 300, 302, 326
geschäftsgrundlage), 4, 11, 15, 54 Depreciation of currency, 298
Binding force of the contracts, 4–29, 57, 147, Destruction of subject matter, 297
154, 164, 166, 172–174, 177, 184, 186, Devaluation, 4, 22, 38, 45, 146, 166, 171–174,
191–218, 265–282 177, 180, 222, 234, 261, 263–264, 318
Burden of proof, 179 Distortion of the equivalence of exchange,
Burden of risk, 5, 19, 234 5, 309
Draft Common Frame of Reference (DCFR),
17, 20, 29, 107, 170, 314, 325, 326
C
Canal de Craponne case, 13
Change of circumstances, 10, 11, 14, 15, E
17–20, 23–25, 42, 53, 54, 84, 86, 88, Economic crises, 34, 37, 101–103,
90–92, 94–98, 106–109, 111–113, 107–110, 114, 117, 118, 164–168,
145–157, 164–186, 192, 193, 195–198, 172, 177–179, 186, 208, 210, 216,
201, 202, 204–206, 210, 212, 215, 222, 229, 265, 290, 308
221–239, 255–259, 266, 268, 269, 271, Error, 14, 15, 19, 20, 150, 151, 153, 226, 227,
285, 286, 290, 291, 310, 314, 321–324, 282, 308
326, 327 Exceptional circumstances, 5, 9, 63, 128, 132,
Clausula rebus sic stantibus, 4, 9–12, 54, 164, 177–179, 182, 184, 185, 204,
84–90, 96–98, 103, 106–109, 111, 114, 270–271, 286, 297–300
116, 118, 124–126, 259, 266–272, 314 Excessive onerousness, 5, 8, 9, 14, 20, 21, 36,
Collapse of financial institutions, 4 93, 132, 169–170, 172, 173, 176, 177,
Complementary interpretation of the contract 180, 182, 184, 185, 298–299
based on the hypothetical intentions Exemption clauses, 289
of the parties, 4 Extraordinariness, 4, 19, 20, 22

Studies in Comparative Law 17, DOI 10.1007/978-3-319-27256-6
332 Index
F Impracticability, 126, 172, 175, 176, 185, 267,

Failed assumptions, 12, 15, 124, 125, 127, 290, 298, 299, 303, 309
129–132 Imprévision, 4, 10, 13, 15, 24, 60–80, 139–143,
Fault, 7, 117, 147, 202, 256, 260, 269, 298, 148, 210, 227, 243–252, 314
303, 312, 321, 322 Indemnity, 5, 25, 26
Financial crises, 3–28, 34, 53–58, 84, Intervention, 5, 6, 8–23, 27–29, 35, 42, 65, 67,
101–119, 121–135, 146, 164, 191, 69, 70, 73–75, 77–79, 132, 152, 154,
221–239, 255–282, 285–303, 307–312 155, 183, 203, 215, 223–225, 228–236,
Force majeure, 4, 44, 54, 60, 86, 92, 244, 250, 252, 263, 270–271
126–129, 131–133, 135,
201, 212, 224, 259–262, 269,
286, 288–291, 293–296, 299, L
300, 303, 314 Leases, 19, 154, 288
Foreseeability, 91, 105, 151, 173, 270–271, Lesion, 15
295–296, 318–320 Liability, 36, 89, 90, 117, 127–129, 131–133,
Foundation of the contract 147, 156, 165, 223, 237, 239, 256, 259,
(Geschäftsgrundlage), 151 275, 279, 302, 308, 309, 311, 312, 318,
Freedom of contract, 11, 84, 89, 290 319
Frustration, 4, 10, 12–17, 20, 24, 25, 42–45, Long-term contracts, 228, 316
94–95, 98, 126–127, 151, 156, 176, Loyalty, 4, 7–11, 21, 24, 25, 28, 29
210, 228, 236, 260, 266, 286,
288–303, 309
Fundamental change, 9, 10, 269 M
Mistake, 14, 15, 19, 150, 151, 273, 275, 308
Modification, 38, 45, 47, 48, 58, 85, 90–98,
G 123, 124, 131, 139, 141, 181, 196,
Gaz de Bordeaux decision, 13 209, 212, 214, 216, 218, 226, 239,
Good faith, 4, 6–11, 14, 17, 18, 21, 22, 24, 310, 314
28, 29, 36, 42, 57, 76, 84, 85,
89, 90, 94, 97, 130, 133, 134, 148–154,
181, 192, 202, 205, 214, 216, 222, 223, N
227, 229, 232, 234, 237, 268, 271, 275, Negligence, 36, 37, 152, 239, 256, 275
315–317, 322–324, 326, 327 Nominalism, 5–9, 16, 22, 27, 28, 39,
Guarantee liability, 5–9, 16, 22, 27, 28 217, 234
H P
Hardship, 4, 5, 16, 17, 19, 53, 54, 62, 70, Pacta sunt servanda, 4–10, 13, 16, 22, 24–29,
71, 77, 78, 107, 111, 116, 118, 33, 34, 36, 41, 72, 84, 95, 108, 123,
121–135, 143, 154, 155, 209, 229, 124, 127–129, 131, 147, 153, 164, 165,
250, 286, 290, 291, 293, 294, 298, 167, 168, 172, 180, 185, 192, 197, 203,
314, 322, 323, 326 205–210, 215, 221, 232, 243–245, 249,
255–259, 286, 289–294, 315, 328
Payment, 7, 34, 37, 40, 44, 69, 73, 117, 126,
I 128, 133, 193, 217, 218, 223, 230, 238,
Immorality, 14–16, 106 258, 261, 268, 269, 271, 272, 316
Implied term (implied condition), 124, 148, Performance, 6, 8–19, 21, 22, 25, 26, 42, 48,
167, 172, 176, 292, 293 54–56, 84–95, 97, 109–117, 122,
Impossibility, 6, 7, 12, 14, 16, 25, 46, 54, 88, 126–129, 132–134, 148, 149, 151, 152,
89, 104, 107, 109, 111, 113–117, 155, 156, 169–185, 208, 212, 223, 228,
126–129, 131–133, 155–157, 169, 172, 229, 231, 233, 239, 256, 257, 260, 261,
174–176, 178, 180, 182, 185, 204, 227, 267, 269, 271, 288, 291–293, 295–300,
233, 260, 267, 290, 297–299, 309 309, 310, 314, 317, 322–324, 326
Index 333
Precondition, 12, 166, 172–177, 202 Suez canal cases, 13, 296
Presupposition, 10, 12, 36, 171, 175, 227–229 Supervening events, 20, 53, 165, 168–170,
Principles of European Contract Law (PECL), 173–177, 179–182, 291, 293,
17, 18, 20, 24, 29, 107, 170, 215, 314, 299, 300
321, 325, 326
Priority between remedies, 5, 26, 57, 134
Public policy, 307, 310 T
Taylor v Caldwell, 124, 292, 293, 297
Termination, 5, 9, 13, 15, 17, 18, 23, 25–27,
R 29, 36, 37, 41–43, 45, 48, 50, 54–58,
Reasonableness, 6–8, 10, 27, 28, 112, 84–98, 105, 107, 108, 111–118, 133,
134, 303 178, 180–186, 205, 212, 216, 221–229,
Recession, 145, 288, 294, 311, 312 231, 234, 236–238, 260, 263, 271, 300,
Reform, 8, 11, 18, 170, 255, 258, 281, 289, 314, 323, 324
300, 311 Theory of unpredictability, 13, 14, 227
Renegotiation, 4–29, 57, 84, 98, 111–113,
134, 166, 179–181, 185, 186, 203, 206,
215, 216, 224, 237, 255–264, 272–281, U
310, 325–327 Unexpected event, 12, 19, 321, 322
Rents, 34, 35, 39, 41, 193, 196, 197 Unforeseeability, 4, 19, 20, 22, 23, 91, 131,
Restitution, 39, 88, 169, 180, 182, 249 165, 204, 317–320
Revision, 4–29, 42, 43, 48, 49, 84, 86, 94, Unidroit Principles on International
98, 133, 147, 151, 152, 154, 169, 179, Commercial Contracts (PICC),
180, 185, 186, 192, 196, 197, 202, 205, 17, 18, 20, 21, 24, 107, 147, 170,
206, 210, 223, 229, 255–264, 272–281, 179, 321, 326
290, 307 Unjust enrichment, 88, 117, 232, 267
Risk allocation, 5, 21, 28, 206, 296 Unpredictability, 4, 13, 54–56, 92, 108, 109,
Risk of crisis, 132 165, 204, 206, 211, 215, 223, 227, 229,
230, 263
Usury, 14, 15, 22
S
Sanctity of contract, 6, 172–179, 185, 286,
289, 290, 312 V
Shocking cases, 9 Voraussetzung, 12

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Ius Comparatum – Global Studies in Comparative Law

The Effects of Financial

Founding Series Editors

Académie Internationale de Droit Comparé

The Effects of Financial

ISSN 2214-6881 ISSN 2214-689X (electronic)

Library of Congress Control Number: 2016930394

Springer Cham Heidelberg New York Dordrecht London

Printed on acid-free paper

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Growing interconnectedness of global economies facilitates the spread of the effects

İstanbul 2015 Başak Başoğlu

Part I General Report and Original Questionnaire

Part II National Reports

8 Crises financières et contrats: le droit positif français refuse

Index ................................................................................................................. 331

Mads Bryde Andersen Faculty of Law, University of Copenhagen, Copenhagen,

Joseph Lookofsky Faculty of Law, University of Copenhagen, Copenhagen,

Başak Baysal is Associate Professor of Civil Law at Istanbul University Faculty of

Rémy Cabrillac is Professor at the Faculty of law of the University of Montpellier

Élise Charpentier is Professor at the Faculté de droit of Université de Montréal.

Mariana Fontes da Costa is Assistant Lecturer at the Law Department of the

Nikolaos A. Davrados is Visiting Professor of Law at Loyola University New

Dumitru Dobrev is Researcher at the “Andrei Rădulescu” Law Research Institute

Flora Huang is Lecturer in Commercial Law at the School of Law, University of

Shugo Kitayama is Professor of Law at Seikei University Law School in Tokyo. He

Gabrijela Mihelčić is Assistant Professor of Civil Law at the Faculty of Law,

Julio César Rivera is a regular member of the Academia Nacional de Derecho de

Wojciech Robaczyński is member of Faculty of Law and Administration of

Anderson Schreiber is Professor of Civil Law at the State University of Rio de

Marketa Selucká is Associate Professor at the Department of Civil Law, Faculty of

Natalia Gennadievna Semilyutina is Director of the Center of Comparative Legal

Chang-hsien Tsai, LL.B., LL.M. (National Taiwan University), LL.M. in Corporate

Marilena Uliescu is Professor and Honored scientific researcher, former head of

Nathalie Vézina has been a Professor at the Faculté de droit of Université de

Horace Yeung is Lecturer in Commercial Law at the School of Law, University of

ADR Alternative Dispute Resolution

TRP Porto Court of Appeal

© Springer International Publishing Switzerland 2016 3

1.1 Introduction: The Weight of Financial Crises and Their

1.2 Essential Rules Related to the Problem: Principles

The second golden rule is the principle of nominalism. According to this

1.3 Concessions from the Golden Rules for the Sake

1.4 Appearances of Subsequent Impairments Justifying

Only then an intervention into the contract (namely an adjustment or termination

1.5 Theoretical Instruments Activated for an Intervention

(c) Assumption of such a clause by the means of complementary interpretation of

The doctrine of clausula rebus sic stantibus, originally produced in connection

“Geschäftsgrundlage” is constructed by perceptions of the parties relating to the

1.6 Interesting Overlaps within the Theoretical Bases

An interesting overlapping is met in German report in which the usury (lésion

This specific concept of initial immorality is most interestingly mobilised

1.7 General Rules and Special Regulations in Legislation

1.8 Conditions for Intervening into the Contract

On the other hand, “unforeseeability” is also a hindrance for security

1.9 Flexible Approach towards the Conditions Justifying

1.10 Legal Consequences and Available Remedies

The legal remedies provided in light of the theoretical instruments justifying an