Rebus sic stantibus. A Latin expression (ablative absolute) meaning “things thus standing” or “provided that circumstances remain unchanged.”
The climate of uncertainty and instability caused by the coronavirus pandemic, together with its far-reaching consequences, affected many different aspects of life, and the legal field was no exception.
A clear example of this was the extensive body of legislation enacted by the Government through emergency decrees, aimed at providing protection and support to the millions of people affected.
However, the purpose of this article is not to analyse those measures, but rather to examine whether exceptional and unforeseen circumstances—such as the COVID-19 pandemic or, more recently, the consequences of an armed conflict—may justify terminating or, at the very least, modifying an otherwise valid and enforceable contract.
At first glance, such a possibility appears to conflict directly with one of the most deeply rooted and fundamental principles of contract law: pacta sunt servanda, according to which agreements must be honoured and performed by the parties exactly as agreed. This principle provides certainty and stability to legal and commercial relationships, preventing contractual obligations from being left to the unilateral will of either party.
Nevertheless, this does not mean that such a fundamental principle cannot, in certain exceptional cases, be qualified or reconsidered. Strict enforcement of a contract in every circumstance may, in some situations, lead to manifestly unfair or unreasonable outcomes.
This raises the question of whether, in exceptional circumstances, there should be room for the suspension, modification or even termination of a contract when an unforeseen event fundamentally alters its underlying purpose or economic basis, making performance excessively burdensome for one of the parties.
To justify these exceptional departures from the principle that contracts must be respected, legal doctrine relies on another principle developed by Roman jurists and still known by its Latin name: the rebus sic stantibus clause.
According to this doctrine, a legal agreement is defined not only by the express intention of the parties but also by the factual circumstances existing at the time the contract was entered into. Consequently, if those circumstances undergo a substantial and unforeseen change, it may become appropriate to adapt the contract or modify some of its terms.
Within Spanish law, this doctrine is closely linked to other general legal principles, such as equity, established in Article 3.2 of the Civil Code, and the principle of good faith contained in Article 7.1. In contractual matters, this obligation is specifically reflected in Article 1258 of the Civil Code, which requires parties to act in accordance with good faith throughout the contractual relationship.
Based on these principles, Spanish case law gradually developed a consolidated doctrine through Supreme Court decisions establishing the conditions under which a contract may be terminated, suspended or modified. These requirements are:
1. A substantial alteration of the circumstances existing when the contract was concluded.
2. That such alteration creates a serious imbalance between the obligations assumed by the parties.
3. That the change in circumstances was unforeseeable at the time the agreement was entered into.
4. That the resulting imbalance cannot reasonably be remedied by any other legal means.
A landmark example of this doctrine is the Spanish Supreme Court Judgment of 17 January 2013, which, in relation to the economic recession that began in 2008, stated:
“An economic recession such as the present one, with profound and prolonged effects, may be regarded, where the contract was concluded before the external manifestation of the crisis, as an extraordinary change in circumstances capable of giving rise (…) to an excessive and unforeseeable imbalance between the reciprocal obligations of the parties (…).”
Against this background, and particularly following the exceptional circumstances arising from the COVID-19 pandemic, there has been a significant increase in legal claims—and several court decisions—based on the rebus sic stantibus doctrine as a means of challenging the strict enforceability of contractual obligations. In many cases, the courts have found that the legal requirements for applying the doctrine were indeed satisfied.
Even so, it should not be forgotten that, due to its exceptional nature, the application of this doctrine must always be approached with great caution. Excessive reliance on it could undermine one of the cornerstones of our legal and economic system: legal certainty.
Accordingly, we can observe, on the one hand, that the courts have not remained indifferent to the difficult situations faced by many individuals and businesses who, as a result of extraordinary and unforeseen events, found themselves in circumstances that were both unfair and highly disadvantageous. This has led to a considerable number of judicial decisions applying the rebus sic stantibus doctrine in order to mitigate the unjust consequences that strict enforcement of contractual obligations would otherwise produce.
On the other hand, beyond litigation itself, there has been a growing tendency in contractual practice to include hardship and safeguard clauses designed to protect the parties against unforeseen events, particularly those that could arise from a future pandemic or similar extraordinary circumstances.
Ultimately, experience confirms that even the greatest crises—and perhaps especially those—provide valuable lessons. Let us hope that these lessons are not forgotten.