WHAT TO DO WITH A SIGNED LONG-TERM CONTRACT WHEN FACED WITH AN UNFORESEEN CHANGE OF CIRCUMSTANCES AFFECTING COMPLIANCE WITH ITS TERMS

3d man business man signing on a blank documentLet’s imagine, for the sake of argument, that you have signed a long-term contract which established obligations or provision of long-term services, and suddenly you find your circumstances changed dramatically (eg. death of the person who had to provide the contracted services) … even a global economic recession .. or indeed any circumstances that are extremely burdensome on one of the contracting parties (terminal or chronic illness), then there exist exceptional legal grounds for annulling a clause in the contract (the usual procedure) or even the termination of the contract itself by means of the “rebus sic stantibus” clause. This legal remedy should be used sparingly.

On 15 October 2014 the First Chamber of the Supreme Court issued Judgment 591/2014 in which the change of jurisprudential trend initiated by Judgment 333/2014 of 30 June 2014, in the interpretation of the rebus sic stantibus clause, came to fruition.

The so-called rebus sic stantibus (things thus standing) clause is an implicit clause in all contracts which offers a solution to the contracting parties when extraordinary circumstances occur that were not foreseeable when the contract was agreed nor which can be attributed to any of the contracting parties, but which creates a disproportionate burden on one of the parties.

In some countries like Germany the solution is usually to cancel the contract, while in others like Spain or France the clauses in the contract affected by the change of circumstances are usually changed instead.

As we will see throughout this article, our jurisprudence has traditionally been very restrictive in the interpretation and application of the rebus sic stantibus clause even where alterations in the contractual considerations are caused by economic cycle fluctuations based on the consideration that in the fulfillment of contracts the principles of “pacta sunt servanda” (the pacts must be fulfilled), foresight, and assumption of business risk should prevail above all.

The two judgments of the Supreme Court outlined in this article, and being a pair constitute jurisprudence as provided for in Article 1.6 of the Civil Code, represent a sharp change in traditional jurisprudence since both consider that the serious economic crisis that affected Spain over recent years must be considered as extraordinary and unforeseen circumstances which may affect compliance with the terms of continuous service and/or long-term contracts signed prior to the crisis, and thereby allowing the rebus sic3d man business man signing on a blank document stantibus clause to be applied to modify their content.

Author: J. Escobedo

I am a member of the Tenerife Law Society since 1989 with a dedicated team for anyone who needs an immediate answer or long term solution to any practical or legal issues appertaining to any property or business investment in Spain. If you have decided to move to Spain to start a new life, whether that´s buying a property or a business, then you will definitely need the services of a good Spanish Lawyer who is fully conversant with Spanish protocol and who has a good command of the English language. I am based in the south of Tenerife and I am specialist in Property Law, Inheritance issues and taxes as well as Tenerife and Canarian law and a great deal more. ABOUT MY STAFF All my friendly and professional staff are fluent in English. We have been working for foreign clientes for over 25 years in Tenerife, providing legal advice and litigation services to all our clients investing throughout the whole of Spain and we pride ourselves on providing a high quality service to our clients in the form of clearer communication and advice.

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