Dizzy and relentless spread of COVID-19 has given rise to the measures taken by the Government increasingly restricting a person's freedom of movement. The above is aimed at smoothing the infection curve and preventing in such way our battered health system from becoming overloaded.
The last of such restrictive measures, which has been announced this weekend, is a total cessation of not essential activity.
However, it is almost equivalent to placing our economy into hibernation and all those commercial contracts regulating relations between the parties who have freely stipulated their mutual obligations into lethargy. Many of these contracts, which are currently in force, either are not being fulfilled or are not going to be fulfilled.
Thus, different legal institutions become special protagonists in this scenario now. If in the previous post we assessed the current situation as an event of force majeure, now we would like to bring up the doctrine Rebus Sic Stantibus (things thus standing), which is contrary and goes directly against another Roman aphorism, a well-known Pacta Sunt Servanda (agreements must be kept).
Rebus Sic Stantibus is a doctrine created by jurisprudence which comes to the rescue of that party which needs to be released from its contract obligations because these have become extraordinarily burdensome or directly impossible to fulfil.
This doctrine applies very restrictively and only when the following elements are combined:
(i) Extraordinary and unforeseen change of circumstances existing at the signature of the contract takes place.
(ii) Unexpected disproportion between the obligations borne by each party under the contract exists.
(iii) There is no other means to solve the occurred contract conflict.
Although now it is impossible to take a crystal ball and predict whether the current exceptional situation will be considered by the courts subject to the application of the doctrine rebus sic stantibus, there is no doubt that this matter will open a heated debate.
At Martí & Associats we recommend keeping calm in spite of this exceptional situation and try to reach agreements achieving survival of contracts until this period of inactivity is overcome.
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