From the moment a contract is concluded until its termination, the parties are bound to its clauses. In other words, the terms of a contract must be fulfilled and performed according to the will of the parties. This is the so called pacta sunt servanda principle. Thus, if any of the parties breaches any clause of a contract, he must indemnify the other party for the damages caused.
The pacta sunt servanda is a basic principle of civil and international law. In its most common sense, it refers to both national and international contracts, stressing that agreed terms are law between the parties.
Much has been discussed about the fairness of this principle. The discussion involves the right or not to revise a contract when there are significant changes in its terms, owing to unforeseen or extraordinary events such as economic crises, war, oil shock, etc. There is an understanding that once a contract is concluded its terms may not be amended by one of the parties without the previous consent of the other party (pacta sunt servanda).
On the other hand, there is also an understanding that a contract may be revised if agreed terms become extremely harmful to one of the parties and no longer expresses the initial intention of the parties, owing to unforeseen or extraordinary events. This possibility to revise a contract in force expresses the core idea of the rebus sic stantibus principle. According to this principle, contracts shall cease to be obligatory or will be revised as soon as the state of facts and conditions upon which they were based has substantially changed.
In this regard, the New Brazilian Civil Code, in force since on January 11, 2003 regulates the rebus sic stantibus principle, allowing the revision of contracts upon judicial decision. This principle is regulated in Art 478 of the New Brazilian Civil Code stating that “… in contracts in which the obligation of one of the parties become excessively harmful, with extreme advantage to the other party, owing to extraordinary and unforeseen events, the debtor may request the termination of the contract“.
Therefore, the rebus sic stantibus principle may affect both national and international contracts. Despite the fact that national contracts may be affected, international contracts are more vulnerable to extraordinary and unforeseen events and accordingly, to be revised.
Moreover, the applicability of Art 478 of the New Brazilian Civil Code may indirectly allow, for instance, a party to a contract acting in bad faith to breach a previously agreed contract alleging extraordinary and unforeseen event. This possibility may cause insecurity to the legal system and consequently the default of many international contracts. For this reason, it is essential for an international contract to determine and stipulate clauses foreseeing as many as possible events which may waive responsibility of one of the parties as well as clauses concerning force majeure and fortuitous events. Hence, international contracts must be drafted more accurately avoiding breaches and ambiguous interpretations.
Accordingly, the enactment of the New Brazilian Civil Code which includes the rebus sic stantibus principle challenges lawyers dealing with cross-border transactions to find solutions which prevent their clients from being exposed to potential judicial claims.