The law of excuses for non-performance has become increasingly important, especially with respect to large construction and service contracts which require continuous and deferred performances. Non-performance of these contracts is often related to the economic and monetary adversity that periodically affects many regions of the world. Because the U.S. economy and its dollar-denominated payments have not been historically as volatile as those of European, Asian and Latin American economies (although this stability is being severely tested at the time of this writing), U.S. contracting parties have not had to turn to excuses for non-performance with the same frequency as their non-U.S. counterparts. Hence, U.S. case law and doctrine regarding excuses for non-performance is not as extensive as that of some European and Latin American countries. For this reason, this chapter will focus largely on the latter and less on the U.S.
The excuse for non-performance chosen as the focus for our study is the “excessive onerousness” (hardship) of the promised, but unfulfilled, contractual obligation. Various reasons prompted this particular excuse selection. The first is that the comparison of excessive onerousness with other possible excuses for non-compliance provides a good overview of the remedies available to parties who contemplate discontinuing a highly onerous performance. Some of these performances may have just been initiated while others may have been going on for a significant part of the agreement.
Secondly, since excessive onerousness is intimately associated with promises of deferred performance, this excuse provides a good opportunity to observe the problems endemic to such a promise. This fits well given that the enforceability of these promises has been one of the continuing themes of this book.
Finally, I felt that in light of the remedies for breach of contract that will be discussed in the following chapters, the Anglo-American reader would benefit from an introduction to some of the most common remedies in civil law countries as they apply to an actual transaction. Here, serendipity intervened and I was asked to participate as an expert witness in an international arbitration whose main legal issue was the legal nature of the remedy of excessive onerousness as compared to other remedies existing in civil law jurisdictions. What follows is a summary of my opinion in this arbitration procedure. In order to preserve the anonymity of this arbitration, the names of the parties and disputed facts have been modified.
In the second trimester of 1993, the Gas Company of El Salvador (GCES) announced the opening of public bidding for the construction and operation of a 1130production plant of natural gas in the Republic of El Salvador. The bidders had to comply with certain terms and conditions, among which was abiding by the method of calculation of the price of the gas produced by the plant. This method assured the winning bidder of a “cost plus” formula which would take effect after the winner was given the right to subscribe to a purchase-sale contract of gas (PCG). After a large investment to build and operate one production plant of gas, this contract would make the winner the provider of gas to GCES for a fixed term of twenty years. In turn, the GCES would be obligated to purchase 100% of the gas produced by the plant.
On February 2, 1994, the bid was awarded to a foreign joint venture that eventually assigned its rights to the AGPC S.A., the defendant in the arbitration proceeding before us. The bidder’s plant initiated operations on September 1, 1995, and consequently the parties began complying with the obligations stipulated in the contract. Months later, the President of El Salvador announced the gradual privatization of the GCES.
In 1996, the Salvadoran Congress enacted the Law for Distribution of Natural Gas. The enactment of this law forced the GCES to grant subsidies to its customers—the large majority of the Salvadoran consumers—by discounting the price of gas below what GCES paid. The GCES alleged that the cited law was a supervening act, unpredictable and extraordinary and that, by itself, was sufficient basis for the resolution (termination), without compensation, of the contract with the defendant. For this purpose, the plaintiff invoked the remedies in Article 994 of the Salvadoran Commercial Code (hereinafter S.Com.C.) and filed the corresponding arbitral claim before the tribunal. Defendant AGPC S.A. requested an expert opinion (discussed below) on the meaning of this provision in light of its purpose and application in other jurisdictions.
The GCES based its claim to the “resolution” of the contract (a term that is the rough Spanish and Latin American equivalent of the United States termination or rescission) on excessive onerousness and quoted Article 994 of the S.Com.C. to support its claim:
Article 994: Where in a contract of continuous, periodic or deferred performance, the performance of one of the parties becomes excessively onerous because of supervening acts that occur in the marketplace and that are extraordinary and unpredictable, the party who owes such performance has the right to rescind or terminate the onerous performance; however, the other party will also have the right to oppose such resolution, through a proposal of an equitable and proportionate modification of the contract. In case of disagreement of the parties, the judge will refer the matter to an expert’s opinion.
The excuse of non-performance of the contract, to which this article refers, is reminiscent to a family of codes, of which the Italian Civil Code of 1942 (hereinafter It.C.C.) is the most influential. Accordingly, this Code will be discussed first. Thereafter, I will discuss those codes that are closest to the Salvadoran code in order of geographic and systemic proximity, i.e. the Honduran, Argentinean, German, Swiss 1131and French civil and commercial codes in addition to the United States Uniform Commercial Code.
From an educational standpoint, this comparison should help familiarize the reader not only with excessive onerousness in the S.Com.C. and its Italian model, but also with analogous remedies used in other civil and common law jurisdictions. As customary in this book, the legal analysis will be accompanied by relevant transactional and socio-economic data.
While the contracting world continues to adhere to the principle of the faithful observance of contracts (pacta sunt servanda), the excuses for non-performance relied upon by the plaintiff GCES remain exceptional in nature. Prominent among these excuses, in addition to excessive onerousness, are: 1) “rebus sic stantibus” or a substantial unforeseen alteration of the circumstances prevailing at the time of contracting; and 2) the need to rely, when changed circumstances occur, not on the letter of the contract but on: a) its “fundamental presuppositions,” b) “hypothetical presuppositions of intent,” and c) “implied conditions.” In addition, some of the most popular excuses across the English Channel and the Atlantic Ocean have been the “frustration of the contractual purpose” and the “impossibility of performance.”
The exceptional nature of rebus sic stantibus, one of the first and still one of the most relied-upon excuses, was made clear by an arbitral decision issued under the aegis of the International Chamber of Commerce (ICC), one of the principal arbitration bodies of the commercial world. In its arbitral decision, the arbitrators stated: “The principle rebus sic stantibus [also known as that of unforeseen changed circumstances … or force majeure] is universally considered as being of strict and narrow interpretation, [and] as a dangerous exception to the principle of sanctity of contracts.”1
As will become apparent throughout this comparison, the same exceptional nature is true for the other excuses. Their exceptionality stems from the same reason that impeded Justice Holmes Jr.’s “bad man’s” choice between performing or paying damages from becoming the guiding principle of contractual performance. Legitimating such a choice would have contradicted the most elemental need for certainty in any viable commercial marketplace.
The factual presuppositions of Article 994 S.Com.C. and its remedial purpose, as found in the legal doctrine that inspired it, lead to the conclusion that it is inapplicable to the contract in question. The facts show that the occurrence of the extraordinary and unforeseeable acts to which this Article refers, were foreseeable by the plaintiffs. This is especially true when one takes into account the plaintiffs’ prominent position both in the Salvadoran government and business world. The plaintiffs’ advanced knowledge of the harmful change of the legal regime was inevitable given their governmental and business prominence. Additionally, such status made them direct or indirect participants in shaping these events.
Similarly, the economic results of the parties’ respective performances place in serious doubt the alleged excessive onerousness, especially if one takes into account the profits obtained by GCES after its privatization and sale of assets.
From a legal standpoint, the roots and remedial purposes of Article 994 S.Com.C. are directly attributable to its Italian ancestry. A careful analysis of the Italian case law and doctrinal commentary shows that this provision was intended for the occurrence of truly catastrophic and unforeseen events with significant effects on the marketplace. Typical among these events were a sudden and unexpected inflation or a drastic devaluation of the national currency.
Finally, the performance of the present contract lacks the elements of onerousness required by leading Italian judicial decisions and doctrinal writings because these, as a minimum, presuppose a “synallagmatic” imbalance (which we will discuss shortly) and an inability to foresee the supervening acts or events that brought about the plaintiffs’ onerousness. In addition, there were serious indications that the plaintiffs assumed what Italian and Salvadoran law refer to as the “aleatory” risk of this contract.
Under Italian law, one of the causes of excessive onerousness is the loss of what courts and doctrinal writers refer to as the synallagmatic balance of promised performances. The concept of synallagmatic balance was described at the end of the eighteenth century by Robert Pothier in his Treatise on Obligations, as part of what he considered the object or purpose of a contract:
[T]hings which one of the contracting parties stipulates shall be given to him, and which the other promises to give him; or something which one of the parties stipulates to be done or not to be done, and which the other party promises to do or not to.2
According to this view, in order to determine if a synallagmatic balance exists in a contract, it is necessary to analyze the parties’ stipulations. In Pothier’s words:
[Perfect synallagmatic or bilateral contracts are those in which] each party’s obligation is also a principle obligation of that contract, the as with sales, leases, partnerships and so on … For example, in the contract of sale, the seller’s obligation to deliver the thing and the buyer’s obligation to pay the price are also the principle obligations of the sale agreement.3
Hence, what characterizes Pothier’s synallagmatic balance is not only the presence of bilateral promises, but also the supposed negotiating equality of the parties and the reciprocity of the performances stipulated by the parties. For this reason, a synallagmatic imbalance does not merely occur when the values of both performances are arithmetically unequal. For Pothier, as well as for his Italian and Latin American followers or adherents, a synallagmatic balance occurs when the parties negotiate the contract under an assumed negotiating equality and receive what they stipulated to. 1133Thus only on rare occasions is it necessary to examine the imbalance beyond what was stipulated in order to establish a price or an equitable balance of performances.
Professor Roberto Lara Velado, the principal draftsman of the S.Com.C. and a scholar who shares Pothier’s views, deems the performances stipulated in a synallagmatic contract equivalent4 as the basis for this affirmation is found in Article 1312 of the Salvadoran Civil Code (hereinafter S.C.C.).5
Moreover, as Professor Lark Velado points out, the more a synallagmatic contract is negotiated and amended and the more the parties rely on objective measuring devices to determine the value of their performances, such as price indexes and mathematical formulas for costs and profits, the more inevitable is the conclusion that an objectively fair synallagmatic balance exists.6 The statutory regulation for this conclusion is found under Article 963 of the S.Com.C. in reference to the determination of a fair price.7
Professor Lark Velado’s observation points to the possible dichotomy between an agreed-upon, a priori and binding synallagmatic balance, and an a posteriori objectively-measured balance which may or may not come into place in cases of excessive onerousness. As will become apparent in the following sections, it is the former balance (i.e., a priori or agreed-upon balance) that most Italian courts look to in order to determine the applicability of excessive onerousness. One reason why the a posteriori form of imbalance comes into play only exceptionally is because of the strong presumption in favor of an a priori balance. This is especially true when a contract is carefully negotiated and, even more so, when any need for an a posteriori balance is expressly or impliedly waived by the parties.
Both the a priori and a posteriori synallagmatic balance of a contract can result from the performances stipulated in a single contract or in a group of contracts, as long as they are all part of or related to the same negotiation. This view was espoused in a 1134decision of the Supreme Court of Spain in 1956 which states that: “… no onerousness exists in the legal sense if the [stipulated] exchange (of values) takes place in other contracts …”8
Article 994 S.Com.C. also requires the claimant’s inability to foresee the acts or events that caused the subsequent imbalance or lack of mutuality. Foreseeability under Article 994 S.Com.C. takes into account the personal and professional traits of the claimant. If the claimant was in possession of privileged information because of his official or quasi-official nature or as a result of his conduct, then the claimant clearly cannot assert that the consequences derived from what he knew, or even should have known, would happen were unforeseeable.
Under Salvadoran private law, mandatory or imperative contractual provisions are exceptional. If the Salvadoran legislator intends to forbid a contractual waiver of a right or claim, then he will generally do so and often explicitly.9 Thus, Article 12 of the S.C.C. allows the waiver of rights as long as such a waiver does not affect third parties. Relying on this Article and taking into account that its waiver is not forbidden, Article 994 S.Com.C. has to be considered as a permissive provision; hence, the excuse for excessive onerousness can be waived under Salvadoran law. As was confirmed by Italian court decisions, discussed in a later section, Article 1467 of the It.C.C. (the inspiring provision of Article 994 of the S.Com.C.) can be waived and so can its Salvadoran counterpart.
The immediate inspiration of Article 994 of the S.Com.C. came from Articles 750, 755 and 757 of the Honduran Commercial Code of 1950 (hereinafter H.Com.C.).10 However, the Salvadoran and Honduran provisions were both inspired by Article 1467 of the C.C (Italy).
The C.C (Italy) of 1942 is one of a few codes regarded as a “unified” code—i.e., a single code that covers what was covered separately by nineteenth-century civil and commercial codes. The C.C (Italy) is divided into six books, 2969 articles and, like its French and German civil and commercial counterparts, it is accompanied by an ever-growing body of commercial legislation including that on maritime navigation (Il Codice della Navigazione of 1940), insurance, bankruptcy and liquidation procedures, and so on.11
Considering its fascist origins, one could have hardly predicted that many, if not most, of the provisions of the original C.C (Italy) would have remained in force in our time.
Nonetheless, because many Spanish and Latin American commercial law scholars did their graduate work in Italy, especially after the Second World War (and many still do), the C.C (Italy) became an inspiration for Latin American codes such as the H.Com.C. of 1950.12
S.Com.C. drafter Professor Lara Velado shared Professor Joaquin Rodríguez’s (main drafter of the H.Com.C.) strong support for freedom of contract. Additionally Professor Velado took into account that this is not an absolute principle and that exceptions must be considered, such as the one in Article 965 of the S.Com.C. In reference to this exception, Professor Velado stated:
There is an exception [to freedom of contract] under commercial law found in the concessions granted to governmental enterprises … and the concessionaires of state or municipal services. [These suppliers]…. can fix the price of their goods and services, because they are the only ones who offer them or because a group of enterprises have agreed on a common price. [Yet, in exchange for this privilege or monopoly, these concessionaires] may be forced to contract with any other person under the same contractual conditions as they have contracted with others …13
It is undisputed that the GCES was aware of this S.Com.C. provision, which does not preclude price fixing but forbids the unwillingness to provide an exclusive service. Furthermore, the S.Com.C. compels the rendering of said services by imposing the remedies of damages or specific performance against the unwilling concessionaire. It was also clear to the GCES that since 1970 it had the duty to provide said public services, regardless of whether the prices for the services were fixed or freely negotiated by the parties. This duty undoubtedly carried with it a major risk. However, it was a completely foreseeable risk to its provider, in this case the GCES.
Article 963 of the S.Com.C. provides a method to determine the fair or just price of a commodity when it is not pre-established in official lists or quotations of prices:
In the absence of official lists to determine the fair price and current market price [of goods, securities or commodities widely traded (also known as escalator clauses)], these will be determined by the lists issued by banks, stock exchanges or the chamber of commerce. In the absence of these lists, prices will be determined by experts.
This provision supports the parties’ freedom to refer to lists of prices or price indices in their contractual stipulations. Thus, the S.Com.C., in an a posteriori fashion, validates the synallagmatic balance of performances in contracts with escalator clauses as done by the PCG.14 On this point, the S.Com.C. is entirely consistent with its Italian progenitor and Italian court interpretations.
The remedy related to excessive onerousness under the It.C.C. is that of the termination (risoluzione) of the contract. Article 1467 of the It.C.C. states:
In contracts of continuous and periodic performance or of deferred performance, if extraordinary and unforeseeable events make the performance of one of the parties excessively onerous, the party who owes such performance can demand the termination of the contract, with the effects set forth in Article 1458.
Termination cannot be demanded if the supervening onerousness is part of the normal risks of the contract.
A party against whom termination is demanded can avoid it by offering to equitably modify the conditions of the contract.
Accordingly, excessive onerousness becomes one more cause of judicial and extrajudicial termination of contracts in Italian law. This is not surprising in light of the fact that contractual termination is the main remedy of contractual law under the It.C.C. The generic cause for judicial termination can be found in It.C.C. Article 1453:
“In a contract with continuous performance, when one of the parties does not comply with its obligation, the other party may request the specific performance or the termination of the contract, subject to compensation for damages suffered in either case …”15
It should be noted that unlike what occurs under the French and Spanish civil codes, the remedy of an extrajudicial termination of the fully or anticipatorily-breached contract is available under Italian and German law.16 As stated by Articles 1454 and 1456 of the It.C.C.:
Art. 1454. The counterparty of the non-complying party may request from the other party compliance with the contract within a reasonable time; if by the end of the reasonable term for compliance the obligation remains unfulfilled, the contract will be deemed terminated.
The term cannot be less than fifteen days, unless the parties agree otherwise, or unless given the nature or purpose of the contract, a shorter term is considered reasonable.
Upon expiration of the term for compliance, the contract will be considered terminated by law.
Art. 1456. The parties to a contract may expressly stipulate the termination of a contract when a given obligation is not complied with according to their stipulations.
Once one of the parties expresses its intention to apply the termination clause, the contract is deemed terminated by law.
As will be illustrated in later chapters,17 both the judicial and private termination of contracts coexist with other remedies and these remedies are often confused, notwithstanding their distinctive characteristics. Among these are remedies based upon codified provisions such as lesion and subjective lesion discussed in earlier chapters.18 In the case of rescission caused by the “lesion” (economic harm or damages), the plaintiff suffers harm by the rescinding party as a result of a sale price of real property significantly lower than its market value. In the case of “subjective lesion,” the plaintiff, a contracting party with weaker bargaining power, suffers by being exploited by the other stronger party. These doctrines are similar to the code-supported remedy known as the annulment of the contract as a result of “vices” of consent; this annulment is caused by the physical or mental handicaps of one of the contracting parties or the duress or coercion imposed upon that party by the other. The following is a discussion of some of these codified and statutory remedies in the It.C.C.
The It.C.C. limits the remedy of rescission to the following situations: a party may rescind a contract when, according to Article 1447 of the It.C.C., it was entered into under “unfair conditions, known by the other party, and caused by the need of saving himself or his family from a present danger of personal injury.”19
The factual assumption of this remedy is not that of excessive onerousness since the latter presupposes a contract entered into by equals and a synallagmatic imbalance of performances in contracts of continued or deferred performance. Along the same lines, Article 1448 of the It.C.C. allows a general claim for rescission as a result of the serious patrimonial injury (lesione) suffered by the Plaintiff:
If there is a disproportion between the performance of one party and that of the other, and such disproportion was the result of a state of need of one 1138party, of which the other has availed himself for his advantage, the injured party can demand the rescission of the contract.
The action is not admissible if the injury [lesione] does not exceed one-half of the value of the performance made or promised by the injured party at the time of the contract.
To be actionable, the injury must continue until the time when the action is filed.
Aleatory contracts cannot be rescinded for injury.
The provisions concerning rescission as a result of partitions are not affected [by this provision].
An action for rescission can entail not only the termination of the contract and the restitution of the amounts unlawfully gained by the defendant and damages, but it can also lead to a criminal action.
This remedy differs from excessive onerousness because it requires that there be a state of need by the contracting party affected by the injury, and also because it limits the remedy to contracts of which the injury is of a certain amount.
Under the It.C.C., contracts can be annulled because of a party’s incapacity,20 mistake, duress or fraud.21 According to Article 1428 of the It.C.C., a mistake is “… a cause for the annulment of a contract when it is essential and acknowledged by the other party.”22 A mistake is “essential” when, inter alia, “1) it affects the nature of the purpose of the contract; or 2) it affects the identity or quality of the object of the performance which, according to the parties’ stipulations, has to be considered determinative of their consent …”23
In our case, GCES is not alleging incapacity, mistake, duress or fraud as an excuse to its claim for the termination of the contract. The aforementioned causes of termination or rescission of a contract affect the parties’ capacity to consent to what was agreed to. This lack of consent is in contrast with the excessive onerousness alleged by GCES which does not question GCES’ capacity or free will to enter into the PCG.
Excessive onerousness as a cause of termination of a contract occurs after the contract has been validly entered into by the parties. The It.C.C. also distinguishes between the various remedies as forms of action and as exceptions or defenses. For example, even though the parties have the right to claim (or not claim) the nullity of a contract, they cannot waive its annulment or rescission. In contrast, excessive onerousness is not listed among the actions or defenses not allowed to be waived, thus it is impliedly waivable.
Unfortunately, there is only minimal legislative history with respect to excessive onerousness, especially in relation to its differences with other excuses for non-performance, such as rebus sic stantibus. Among the few legislative history references available on Article 1467 of the It.C.C., there is one provided by the Italian Minister of Internal Affairs (Ministro Guardasigilli) at the time of its enactment: “Thus, i[t] [excessive onerousness] introduced expressly and generally for contracts with reciprocal performances [implementing] the principle of implicit subjection to the clausula rebus sic stantibus … consistently with a singularly Italian tradition …”24
This reference to the rebus sic stantibus doctrine has been shown to be historically inaccurate and thus unreliable. As pointed out by Professor Augusto Pino, the rebus sic stantibus doctrine is applied to contracts of all types, whereas Article 1467 of the It.C.C. applies only to specific contracts, such as commutative contracts and contracts whose performance is deferred.25
As concluded by Professor Pino: “In effect, the general principle that was deemed … Article 1467 of the It.C.C. can be deducted and established fully only by means of a rigorous interpretation of this provision and not by a reference to a historical principle with which it may not even coincide.”26
As will be apparent during the discussion of the German excuses for non-performance,27 the hyperinflation of post-World War I Germany (during a time in which numerous Italian legal scholars did their graduate work in that country) was a dramatic laboratory on the effects of unforeseen circumstances upon the performance of commercial and civil contracts alike and how to deal with such circumstances. The vast amount of German judicial and doctrinal literature on the various remedies analogous to excessive onerousness is continuously referred to by Italian commentators and court decisions to this day. In light of the influence of other German contractual law institutions, such as the Nachfrist28 (or preparatory notice for an extrajudicial resolution of contracts) upon the It.C.C.,29 it is likely that German literature influenced the Italian drafters of the It.C.C.
For some of the Italian commentators, the purpose and scope of Article 1467 is easier to understand when it is juxtaposed with Article 1469 of the same code which allows the waiver of excessive onerousness as a defense or grounds for resolution of the 1140contract when the contract is aleatory, i.e., when its participants are willing to gamble on its positive or negative results.30
In contrast to Article 1312 of the S.C.C., which will soon be discussed, Article 1469 of the It.C.C. does not define aleatory contracts. However, as is customary in civil law countries, such gaps are usually filled by doctrinal definitions. One of the most influential doctrinal definitions of an aleatory contract belongs to the late Professor Francisco Messineo:
Aleatory contracts, by their nature, are those where the element of sacrifice is related to the element of profit-that is to say, while the risk to which one party is exposed cannot be quantified at the time of formation of the contract, it will be subsequently revealed by the course of events … [and by the outcome of the contract].31
On the other hand, Article 1312 of the S.C.C. acknowledges that commutative contracts can easily become aleatory:
The onerous contract is commutative when each of the parties obligates itself to give or do something that is regarded [by the other party] as equivalent to what the other party must give or do; and if the equivalent [performance] consists of an uncertain contingency of profit or loss, then it is known as aleatory.32
In the same vein, Article 1469 of the It.C.C. refers to a commutative contract that can be transformed into an aleatory contract by the intent of the parties.33 It should not be surprising, then, that when the parties decide to create an aleatory contract Article 1469 of the It.C.C. allows them to waive the application of Article 1467.
Professor Carlo Braccianti, one of the first commentators of Article 1467 of the It.C.C.,34 lists aleatory contracts, by nature, as those that involve “sales of futures, pensions and insurance plans, betting games, authorized lottery, and some stock exchange contracts, etc.”35 Agreeing with this doctrinal observation, Italian case law has also contributed to the determination of implied aleatory contracts and has classified supply contracts with price adjustment clauses as one of the most common aleatory categories. As stated by a 1985 decision by the Corte di Cassazione:
If extraordinary events occur during the performance of supply contracts, where the parties have included adjustment mechanisms to mitigate prices, termination may not be obtained even in cases where the adjustment mechanism turns out to be inappropriate in reestablishing equilibrium between the economic value of the performances. The adjustment 1141mechanisms … imply the will of the parties to assume the risks of supervening events …36
The equation of indexation clauses with assumption of market risks is clear in a 1991 decision of the Corte di Cassazione: “A contract of sale is aleatory [with respect to its market price] when it expressly stipulates the automatic revaluation of the purchase price in relation to the rate of exchange between the Italian Lira and the Swiss franc.”37
These courts also expanded on the validity of the waiver of defenses provided by Article 1467 of the It.C.C. As the reader may recall, Article 1469 of the It.C.C. allows the parties to implicitly transform a commutative contract into an aleatory one, thereby waiving the application of Article 1467 of the It.C.C. Additionally, Article 1341 of the It.C.C. allows the party who drafted a standard contract to stipulate limitations to contractual and extra-contractual responsibilities, as long as the other party agrees to those covenants in writing.38 Therefore, the previously-cited Italian case law and statutory provisions leave no doubt that the action for excessive onerousness can be waived by the fact of entering into an implied aleatory contract. These sources concur with Professor Pino’s reference to Article 1467 of the It.C.C. as a “dispositive provision,” or a provision whose application can be excluded by the parties.39
On repeated occasions Italian courts have characterized as aleatory those contracts in which the claimant should have foreseen the risks involved. For example, in a 1994 decision by the court of Genoa,40 a buyer of stock on margin claimed the resolution of his purchase agreement after the administrator of the stock exchange issued an administrative order forbidding future margin contracts. The court held that the issuance of such an order was foreseeable by a person with average negotiating capacity, average shrewdness and knowledge of stock exchange transactions, and added: “in stock exchange-margin agreements, termination because of excessive onerousness is not possible where an administrative authority forbids sine die new stock purchases …”41
The court also held that in order to terminate a contract because of excessive onerousness, three conditions must be met: 1) extraordinary and unforeseeable events that cause contractual imbalance; 2) excessiveness of that imbalance; and 3) the occurrence of a risk above and beyond that which is normal for that type of contract. The court considered that in this case the three conditions were not met; even though an administrative order is not statistically predictable, it is likewise not necessarily unforeseeable. It is well known that regulators of stock exchanges have the power to demand cash payment of margin transactions; thus, payments in cash instead of margin should be considered as part of the “rules of the game.”42
Italian courts refer to contractual risk or “alea” as a notion connected to the particular market and type of business.43 Therefore, any risk that is common to that market and business should be considered as assumed by the parties unless otherwise stipulated. As was previously discussed, the parties have the freedom to include clauses or covenants by which they are bound to assume or waive risks, even to the point of having to perform the contract when this performance could be categorized as impossible.44 For this reason, courts have held that if a contract were entered into in time of war, the parties necessarily had to assume or waive certain business risks. Courts have also held that share price fluctuation may be considered a normal risk depending on the current market conditions.45
As will be discussed in following sections, in some countries, such as France, that have not adopted the legislative remedy of excessive onerousness, it is possible to claim unforeseeable consequences of a contract as an excuse for non-performance, although this excuse is limited to administrative concessions. If the costs of performing an administrative concession exceed the limits of what could have been foreseen by the parties when entering into the contract, a French court, although reluctantly, can adjust them.
Even a cursory review of Italian case law on excessive onerousness will reveal that courts closely link foreseeability and synallagmatic imbalance, especially when the latter can be measured objectively. In doing this, it is clear that excessive onerousness is a broader doctrine than the French doctrine of foreseeability since it is not restricted to administrative concessions.
For example, in a 1994 decision by the Court of Monza (Italy), the plaintiff was the seller of 1,000 tons of steel. In the case, the plaintiff proved that the cost of the raw materials required to produce the steel had increased thirty percent above the final agreed-upon price. He also proved that at the time of performing the contract, the market price of the product was forty-five percent higher than it was when the agreement was entered into. Nevertheless, he did not prove that the increase in costs was caused by an extraordinary and unforeseeable event rather than by his own delay in acquiring the raw materials. The claim was rejected by the court as follows: “The claimant had to prove that the fluctuations of prices, far from depending upon the normal and inherent transactional risk, found its origin in abnormal economic or financial causes, general or particular (as the case may be) that affected the price in an extraordinary and unforeseeable fashion.”46
Because of the close relationship between the synallagmatic imbalance and what is foreseeable by the parties, a doctrinal commentator of this decision aptly concludes that excessive onerousness often varies from case to case; simply put, it is as much a 1143factual as a legal determination.47 Not surprisingly then Italian courts have had to resort to a flexible, albeit objective and archetypal, standard of behavior to measure foreseeability. The chosen standard is the behavior of an “average person” (uomo medio) under the circumstances of the marketplace in question.48 This standard seldom requires highly-specialized knowledge, unless it involves professional contracting parties; and instead it leads to an evaluation of the foreseeability “in relation to the situation in existence at the moment of the conclusion of the contract … in relation to the nature of the transactions and the conditions of the market [as known or as should have been known by an average person].”49 Therefore, if the transaction involves the purchase of stock in a stock exchange, the standard of an average person will be that of a person with “average capacity, average shrewdness and knowledge of the stock exchange transactions,” but not necessarily a specialist.50
This standard of foreseeability is also inextricably tied to the determination of “normal risk assumption” (alea normale) and has led some courts to establish a group of risks that can be considered as foreseeable within certain markets, such as the fluctuation in the value of currencies, inflation, and variations in production costs or in the price of certain merchandise, such as fungible goods.51
Paolo Cendon, another well-known commentator of the It.C.C., notes that despite the objective (synallagmatic balance) approach generally used by Italian courts, some judicial decisions rely on the doctrine of contractual presupposition. This doctrine assumes that the excessive onerousness of the It.C.C. is merely a restatement of rebus sic stantibus.52 As noted earlier, this equation was also made without much support by the Minister of Internal Affairs of Italy at the time of the It.C.C.’s enactment. According to this judicial viewpoint, events that were not assumed as likely to occur, and thus were not taken into consideration by the parties at the time of contracting, might lead to the termination of the contract if they took place once the contract was to be performed.
Cendon objects to this point of view because he considers that, in order to determine a synallagmatic imbalance, the only thing that a judge needs to do is to compare the performances and counter-performances stipulated by the parties. In his opinion, it is beyond the judicial function to speculate on what was taken, or should have been taken, into consideration by the parties, when and where. Professor Pino adds to this objection that the nineteenth century German writings already distinguished between the rebus sic stantibus and the contractual presuppositions doctrines. When applying the rebus doctrine, the adjudicator first examines the express language of the contract and then compares it to the supervening events that affected 1144the parties’ ability to perform. If the contractual language did not contemplate the supervening events, the rebus doctrine applied. In contrast, when applying the doctrine of contractual presuppositions, the adjudicator disregards the explicit language of the contract and looks for the hypothetical agreement between the parties based on what he conjectures was their contractual intention; the adjudicator will then take this intention into account and try to enforce it in light of the supervening acts, regardless of their foreseeability.53
Additionally, Professor Pino points out that the doctrine of contractual presuppositions is a serious limitation upon the parties’ freedom of contract since it creates a new type of implied condition, or “super-condition,” of reasonability justified, paradoxically, by the argument that if the parties had taken those facts into consideration when entering into a contract, they would have included them as part of their stipulations.54 Thus, the express contractual intent, or what the parties had actually agreed on, would be subordinated to what they should have agreed on in the eyes of the judge; accordingly, the parties’ contract would become enforceable only if the judicially-presupposed facts had been made part of the contract.
This reasoning leads Professor Pino to conclude that the doctrine of contractual presuppositions and Article 1467 of the It.C.C. are incompatible. For if they were compatible, the parties to “contracts of continuous or periodic performance or for deferred performance”55 would have to subordinate the enforcement of their obligations to the verification of unforeseeable events, even under circumstances that were not considered by the parties precisely because they were unforeseeable.56
Another reason why the doctrine of contractual presuppositions has not succeeded with the majority of Italian courts is that it encourages the debtor’s bad faith by allowing him to contradict his own contractual acts with impunity. As was pointed out in Giuseppe Mirabelli’s Commentary to the Italian Civil Code: “[T]he events must be strictly accidental or imputable to a party other [than] the party who invokes their relevance.”57 Therefore, an Italian court would not apply Article 1467 of the It.C.C. to the dispute between GCES and AGPC S.A. because GCES’s claim of an unforeseeable act (privatization by the Salvadoran government) was not only foreseeable, but could have been directly or indirectly attributable to GCES itself. In this respect, Mirabelli considers that:
[Any conduct] imputable to the debtor may exclude the application of the remedy not only in the case where the debtor did not foresee, because of his negligence, an event that was clearly foreseeable or in the case where the debtor suffered the effects of excessive onerousness having been placed in default but also because he had participated in the aggravation of his own indebtedness …58
Anticipating the occurrence of a result like that of the above-discussed 1994 decision by the Court of Monza, Paolo Cendon reiterated the role of a bilateral or synallagmatic imbalance analysis as:
[Contemporary interpretation has] overcome the temptation to subsume excessive onerousness within ambit of hardship or the more general doctrine of difficulty of performing the obligation … thus reflecting a strictly objective notion onerousness; case law too excludes the subjective component of the debtor’s difficulties in performing, maintaining that the impairment of the debtor’s ability to perform is not by itself a cause for termination, unless that impairment is also accompanied by a marked increase in the value of his performance.59
This same author points out that the crucial moments for measuring the contractual imbalance are i) when performances are due and ii) when performances are finally carried out.60 As noted earlier, Professor Pino, another proponent of the objective criteria for measuring onerousness,61 suggests that since the law is not an exact science, it can hardly measure the mathematical equivalence of performances. Hence, the legal equivalence of performances must be understood as the value that each party, ex ante, is willing to grant to the performance of the other party in exchange for one’s own performance.
Where the present dispute is concerned, Professors Cendon and Pino would point out that the main issue is not the size of the alleged loss suffered by plaintiff GCES when selling the gas it purchased from AGPC S.A. at the agreed-upon contract price. Instead, reflecting the majority opinion in Italy, these authors would conclude that the main issue would be whether the payments made by the GCES to AGPC S.A. gave the latter a completely disproportionate value compared to that which would have been given as required by their contract.
In a similar vein, in one of its decisions, the International Court of Arbitration of the International Chamber of Commerce equated excessive onerousness to its version of hardship and rejected its application as follows:
Faced with a number of unforeseen difficulties which substantially increased the cost of the construction, the contractor requested the renegotiation of the contract invoking hardship according to Articles 6.2.2 and 6.2.3 of the UNIDROIT Principles … the Arbitral Tribunal held that the provisions of the UNIDROIT Principles on hardship do not correspond, at least presently, to current practices in international trade.62
There can be little doubt that Italian case law and doctrinal comments have circumscribed the scope of application of Article 1467 of the It.C.C. and that they continue do so. This trend confirms the restrictive nature of this excuse for non-performance in Italian law. Among the categories of contracts that cannot be terminated because of excessive onerousness are: i) unilateral contracts, or contracts in which only one party acquires obligations, i.e., the contract of donation;63 ii) executed contracts, as opposed to executory promises or promises whose performance is deferred;64 iii) cases in which the plaintiff fails to prove his contractual diligence as manifested in an absence of reasonable foreseeability;65 iv) leases that include express or implied conditions that prohibit the lessee to use the leased asset to compete with the lessor or for purposes other than specified if the lease is subject to a statutory minimum term;66 v) loans of fungible goods;67 and finally, vi) loans and other contracts in which the beneficiary has received payment of a sum of money intended to cover the risk of loss caused by a supervening inflation.
Moreover, according to Professor Pino, for a considerable period of time, Italian case law rejected the application of Article 1467 of the It.C.C. to loans of all types. This rejection was due to the prevalence of the nominalistic principle that established that the beneficiary only owed the expressly stated or nominal amount of the loan, plus interest.68 Furthermore, as noted by a 1980 decision of the highest Italian court, the Corte di Cassazione, it is a well-established judicial doctrine that “[e]xcessive onerousness will not lay where the damage suffered by the plaintiff is imputable to his own behavior.”69
To summarize, Italian judicial interpretation is characterized by a continuous search for a circumscribing formula to determine objectively whether or not the performances agreed upon resulted in a reasonably unforeseeable synallagmatic imbalance. The main issue is not the amount of damages caused to the plaintiff or the 1147profits that he failed to receive, but the excessive disproportion between the value received by the claimant and that, which according to the contract, he should have conferred to the defendant at the time of performance. Therefore, it is in the imbalance of the stipulated performances where excessive onerousness must be found. Finally, a finding of foreseeability of the onerousness depends upon the standard of an average market participant, the uomo medio; a flexible standard that is adjusted to the typical assumptions of risks and profit-making in different types of markets.
Article 1198 of the Argentinean Civil Code of 1968 (hereinafter A.C.C.) was inspired by Italian and German law.70 It states:
Contracts shall be created, interpreted and executed in good faith and in accordance with what the parties probably intended or could have intended, operating with care and foresight. Where in bilateral commutative contracts and unilateral onerous and commutative contracts of deferred or continued performance the performance owed by one of the parties becomes excessively onerous as a result of extraordinary and unforeseeable events, the affected party may claim the termination of the contract. The same principle will apply to aleatory contracts where excessive onerousness results from causes extraneous to the very risk of the contract.
In contracts of continued performance, its termination will not affect the already-executed performances.
Termination will not apply if the affected party was in fault or in default.
The other party may prevent termination by offering to equitably improve the provisions of the contract.71
This article applies the principle of good faith in a more open-ended manner than its German model. Section 157 of the BGB provides that contracts must be “… interpreted as required by good faith, taking customary practice into consideration.”72 As will be recalled from the discussion in the preceding chapter of culpa in contrahendo,73 this provision of the A.C.C. goes beyond its German counterpart by requiring good faith, not only in the execution of contracts, but also in their creation.
While Article 1198 of the A.C.C. has elements in common with Article 1467 of the It.C.C., it also departs from this model by allowing excessive onerousness in aleatory contracts, as long as it arises from causes extraneous to the very risk of the contract. The consequences of using such broad language do not appear to have been considered by the Argentine legislators. For example, assume that the contract is a purchase agreement in which the seller, knowing that the market is highly volatile, binds himself to sell gas at a price fixed by the parties. According to Article 1198 of the A.C.C., the provisions on excessive onerousness would not be applied in the case of a 1148significant increase in the price of gas because this would be considered as the “very risk of the contract.” Nevertheless, according to this same rule, the excuse would apply in a case in which the production plant was destroyed by an earthquake since Article 1198 of the A.C.C. provides that “[t]he same principle will apply to aleatory contracts where excessive onerousness results from causes extraneous to the very risk of the contract.” But would it? What did the Argentine legislator mean by an “extraneous cause”? Given the openness of this exception, an earthquake could be an extraneous cause and, as such, would allow for the resolution of the contract based on the excessive onerousness doctrine.
However from a strictly conceptual point of view, why should the consequences of a force majeuer (a force of nature or an act of God) such as those of an earthquake (extrinsic events to the risk assumed in the contract) also be considered aleatory? Such causes would only be aleatory if the parties had assumed the risk of their occurrence at the time of entering into a contract. Accordingly, Article 1198 of the A.C.C. would not apply to such situations because they would be part of the “very risk of the contract.” And from the standpoint of commutative fairness, why should the debtor and victim of a force majeure be forced to the standard of proof required by excessive onerousness, when the force majeure itself could free him from having to comply with his obligation to continue to supply natural gas? Or does Article 1198 of the A.C.C. exclude the application of these rules when there is a force majeure?74 It is obvious that Article 1198 of the A.C.C. should have been drafted more clearly so as to avoid questions like these.
Argentinean case law has helped to clarify the open-ended nature of its civil code provisions and application of excessive onerousness, especially in a hyperinflationary marketplace. In Argentina during the 1970s and 1980s, the high increase of litigation for excessive onerousness was described by a judge as the result of the “hurricane” of hyperinflation that hit the country in the early 1970s. When reading the numerous decisions on this matter, it is clear that this hurricane was perceived by Argentineans as man-made and not a force of nature. In most of the decisions there is reference to the “Rodrigazo,” an administrative decree formulated as an intensive economic shock therapy ordered by a minister whose first name was Rodrigo but whose last name, for unknown reasons, was never mentioned. Many judges and commentators attributed the hyperinflation to this decree that occurred following June 1975.
After 1975, the Rodrigazo prevented debtors’ claims of excessive onerousness by supporting the argument that the parties should have been aware of the hyperinflation and should have considered it in their contracts. At this time, most of the litigation involved the sale of real estate property, and most of the transactions, ranging from small lots to apartments, houses and condominiums, were paid through installments. 1149Landowners, builders and landlords claimed that their sales or lease prices had become “laughable” as a result of hyperinflation. Thus “what started [as a] regular sale or lease, inflation turned into a donation.”75 A 1980 decision from the Appellate Court of Cordoba illustrates how the argument of a “laughable” counter-performance became the basis for the termination of contracts.76 In this case the plaintiff had purchased real estate property whose value substantially increased as a result of the devaluation of the Argentinean peso with respect to the U.S. dollar. The purchase agreement was documented in a Public Deed and recorded at the Registry of Real Estate Property. However, the defendant refused to deliver the property alleging the application of Article 1198 of the A.C.C. because: “the purchaser’s counter-performance has become laughable.” The court took judicial notice of the hyperinflationary process and stated: “In 1972, I held, remembering Italian case law, that a claimant cannot claim sopravenienza when what is involved is the mere depreciation in value, but once an extraordinary monetary depreciation has taken place, the termination or revision of the contract because of excessive onerousness should be applied.”77
The court determined that the inflationary rate at the time of the purchase agreement (45% per year) had increased by 100%. It also examined the cost of living and found that this factor had increased from 346.7% in January 1973 to 439% in January 1974. In 1975, this index reached 952.5%, and by December of that same year it had increased to 2,595.2%.78
Based on these statistics and on their impact on the defendant’s payments of installments, the court decided that Article 1198 of the A.C.C. had to be applied. Yet, the influence of Italian case law and its insistence upon the element of lack of foreseeability as measured by the standard of an uomo medio can be found in another Argentine appellate decision that excludes the application of Article 1198 of the A.C.C.79 As stated in that 1980 decision:
The theory of unforeseeability (imprevisión) embodied in Article 1198, second paragraph, does not apply when the contract was entered into after the month of June 1975, because [that time] is the determining and significant landmark that unchained a surprising and extraordinary inflation, from which time onwards an adequate diligence impeded the ignorance of subsequent effects.80 (emphasis omitted).
The same reasoning is present in a 1979 appellate decision:
The ground (for appeal) based upon the “theory of unforseeability” has no basis because at the time of the Public Deed—October 1975—the party that now claims to have been damaged could more than reasonably have been 1150aware of the profound hyper-inflationary process that had been shaking the Argentine population since the beginning of June 1975.81
Considering that Article 1198 of the A.C.C. and Article 994 of the S.Com.C. share the same normative lineage, the Argentine judicial experience with the element of foreseeability is very useful in determining the application of the latter to the Salvadoran dispute central to the arbitration.82
The BGB adopted a very restrictive policy on excuses for non-performance as a result of supervening circumstances.83 While it is true that Section 275 of the BGB freed the debtor from the duty to perform when he was not responsible for the circumstances that created the change,84 in order to terminate the contract he had to prove that compliance had become impossible.85 Bernhard Windscheid suggested that courts should, when fairness required, apply the doctrine of “tacit presuppositions.”86 This doctrine, which sought to ascertain the implied intent of the parties, shared much with the Italian doctrine of contractual presuppositions, discussed earlier. Windscheid’s suggestion was not accepted by the other drafters of the BGB.
Two decades after its enactment, following Germany’s defeat in World War I and the supervening inflation, the BGB rules that were initially formulated for exceptional cases became the norm in Germany’s everyday life. Initially, the Supreme Court (then the Reichsgericht) refused to admit excuses for non-performance. During the 1920s, the Reichsgericht held that “a rise in market value or procurement cost of a commodity or service was no excuse to a seller from his promise to sell it,”87 notwithstanding the fact that in a five-month period, wholesale prices within the country had tripled. However, two of the “Chambers” (or divisions) of the Supreme Court did order the revision of the 1151terms and conditions of those contracts in which the supplier’s costs of production had increased in such a way that could lead to his economic ruin.88
The systematic expansion of the judicial power to review contracts began in 1921 through the writings of Paul Oertmann, a commentator who merged the rebus sic stantibus doctrine and Windscheid’s “tacit presupposition” into the concept of “foundation of the transaction” or “basis of the business” (Geschäftsgrundlage).89 According to Oertmann, the rebus doctrine did not assume an impossibility to perform because the parties could not prove at the moment of entering into the contract that both were anticipating the unforeseeable events that could eventually lead to the contract’s resolution.90 Oertmann suggested that it should be enough for one of the parties to consider a term or condition or the occurrence of an event as a presupposition or basis of the contract, and for the term to be known by the other party, even if it was not mentioned in the contract or in discussions that preceded the contract.91 This is how Oertmann attempted to narrow and make more objective the scope of application of Windscheid’s proposed rule. In contrast to Windscheid, Oertmann focused the attention of the court on the effects of the unforeseen events and not on the contractual intent or expectations of the parties. Oertmann’s theory was based on the legislative objective standard established in Section 242 of the BGB, which provides: “the debtor is bound to effect performance according to the requirements of good faith, giving consideration to common usage [in accordance to the commercial usage that prevails in the market].”92
By 1922, courts began to apply the Oertmann-inspired remedy in cases in which one party was heavily burdened by unforeseen events. This remedy was known as “Adjustment” (Anpassung), or the judicial adjustment of the performance. Based on this remedy, courts held that, for example, a buyer had to pay a higher price than the stipulated one, in order to compensate for the unforeseen increase in the costs of the seller.93
Dawson’s analysis of five decades of German decisional law, starting in the 1920s and including the post-World War II period, shows the basic requirements of the Anpassung and other judicial doctrines that attempted to rise up in its place. His analysis began with a November 28, 1923 decision of the Reichsgericht that deprived the German mark of its status as a compulsory legal tender once its value reached almost zero.94 In this case, a creditor was freed from his obligation to receive payment in marks as stipulated in a mortgage note signed seven years prior to the date of execution. According to the Court, the statute that granted marks the status of legal tender currency was enacted in a prosperous and stable time; therefore, drafters could not foresee the effects of a devastating war and hyperinflation.
As Dawson points out, this decision not only abolished a simple contractual provision, but also the binding effect of monetary legislation. That claim was based on Section 242 of the BGB, which according to the court “rules over the whole of our legal order.”95 The court reasoned that no one, acting in good faith, could believe that paying a debt with meaningless currency would ever fulfill a duty of payment.96
In contrast with the judicial activism of the 1920s, the 1930s witnessed little judicial revision of agreed-upon contractual performances with only few exceptions. A 1933 decision of the Reichsgericht regarding clauses to preserve the value of an agreed-upon currency was one of the few holdings that revised original contractual terms. In this case, the parties agreed on measuring the value of the debt originally in marks, with a rate of exchange in British sterling pounds.97 The plaintiff argued that, for both parties, the basis of the contract was payment measured by the value of the sterling pound as “the firmest currency in the world.” Yet, at that time the British currency had devaluated thirty percent since the granting of the contract. As such the court of appeals considered that the court of first instance “might be justified … in awarding the plaintiff the full prize due before the rate of exchange had been unexpectedly altered.”98 However, in another case, the court rejected this type of revaluation because the decrease of the purchasing power had not exceeded fourteen percent.99 Similarly, another decision rejected a purely arithmetic ratio to determine the loss of the basis of the contract.100 Thus, a loan granted in sterling pounds that had to be paid in the same currency and that had resulted in a loss of less than a third of the value of that currency was not entitled to revaluation.101 During this time it became apparent how the theory of judicial adherence to the “foundation of the contract” was open to arbitrary interpretation.
Since the 1950s, German courts applied the Anpassung as their preferred remedy and one that allowed them to review “all kinds of contracts that had been unbalanced through the discovery of unknown facts or the occurrence of unexpected events.”102 As Dawson pointed out, this remedy “rested on the premise that since a contingency had occurred for which the contract had not provided, [and that] a court must step in and fill the gap.”103 In the words of Dawson, “the conclusion had no connection whatsoever with the premise.”104
The courts’ enthusiasm for the revision of contracts during the 1950s and 1960s began to decrease thereafter. In the following decade, sellers of real estate were denied adjustments to increase the payments owed by buyers, even when the argument before the court was that the cost of living in Germany had increased by fifty-two percent since the time the parties had entered into the contracts.105 Accordingly, the lessor of a gas station was denied the adjustment of a lease agreement despite his argument that during the course of the twenty-one year lease, the cost of living had increased sixty-six percent.106
Dawson finds that the clearest test of the attitude of German courts regarding performance imbalances occurred during the 1972–1973 “oil shock,” an event that saw an unprecedented increase in the price of the middle-eastern oil. This increase caused a serious imbalance in the value of performances; in some cases the cost of oil was ten times higher than actually stipulated in the original contract. Notwithstanding such a disproportion, most German courts held that the increase in oil prices was no excuse for the judicial adjustment of those contracts.107
Article 373 of the Swiss Code of Obligations of 1912,108 another of the few “unified” civil and commercial codes, contains a rebus sic stantibus-like rule with regard to sale agreements. This rule allows the seller to increase the price in the case of extraordinary events. Moreover, if such an event were to prevent or impede the normal performance of the contract, the court, in its discretion, might increase the contract price or order its termination. Regardless of the apparent openness of this provision, Swiss courts have been quite reluctant to apply the rebus sic stantibus doctrine, as is apparent in the decision by the Swiss Federal Court in the matter of Rogenmoser v. Tiefengrund A.G.109
In this case, the plaintiff leased a restaurant from the defendant for a fifteen-year term but, after a short period of doing business, the plaintiff requested that the defendant-lessor consent to a reduction of the installment payments because of the serious effects of the economic downturn in Switzerland at the time. The commercial court of the Canton of Zurich dismissed the complaint and the Federal Court affirmed the dismissal stating:
Like the other modern codifications, the positive law of Switzerland has not adopted this view (clausula rebus sic stantibus). Nevertheless, this Court has recognized that a promisor must be discharged if extraordinary and unforeseeable circumstances render his duty to perform the promise so onerous that insistence upon [such] performance would cause his economic ruin … Upon renewed examination, we cannot adhere to this criterion without qualification. If the principle of bona fides is the yardstick for the 1154application of the clausula [rebus], then the decision cannot be made to depend solely upon the effect which the change of circumstances had upon the obligor’s duty to perform. The effect of the change on the entire legal relationship must be examined. The criterion of threatened ruin of the obligor would in the last analysis depend upon his subjective ability to perform … [The court points out that this subjective criterion would be inconsistent with the provision of the Code which prescribes that only objective but not subjective impossibility shall excuse performance.] The contract of lease was entered into for not less than fifteen years. This long duration contained a speculative element, at least on the part of the plaintiff. Also the nature and size of the premises rendered it clear [from the beginning] that the contractual risk was a substantial one.110
The final part of the decision indicates that the Swiss courts, as well as their counterparts in Italy, rejected the application of the doctrine of excessive onerousness to both express and implied aleatory contracts. Consequently, this Swiss decision, as well as the Italian ones discussed earlier, is based on a synallagmatic imbalance that can be measured objectively and granted on a case-by-case basis depending on the facts and the specific rules applicable to them.
Under French law there is no legislative provision similar to that of Article 994 of the S.Com.C., Article 1467 of the It.C.C., Article 1198 of the A.C.C., Article 275 of the BGB nor Article 373 of the Swiss Code of Obligations. Normally, civil and commercial appellate courts in France have insisted on the principle of sanctity of contracts (pacta sunt servanda), thus rejecting petitions to adjust or revise contracts due to an unforeseen change in circumstance.111
After World War I and the devaluation of the French franc that followed, many French parties to contracts tried to obtain the revision of their contracts, not because their duty became impossible to perform but because it was so onerous and because they had not been able to foresee such an event. Some of their allegations were based on the principle of contractual good faith under Article 1134 of the Code Civil. While others argued for the application of Article 1156 of the same code that allowed parties to obtain judicial revision of their contracts to reflect the true intention of the parties.112 However, the French civil and commercial courts were not persuaded by these arguments and continued to apply the pacta sunt servanda.
On the other hand, the Conseil d’Etat, the highest administrative court in France, adopted a more liberal criteria on the revision of administrative contracts in the matter of Compagnie Générale d’Eclairage de Bordeaux v. Ville de Bordeaux.113 In this case, the plaintiff had promised to supply gas to the city of Bordeaux on a fixed tariff rate 1155and for a specific number of years. As a result of World War I and an increase in the price of coal, the price of gas increased dramatically. The plaintiff requested a revision of the contractual tariff rate but her petition was dismissed by the corresponding authorities. However on appeal, the Conseil d’Etat overturned the local administration’s decision.114
According to the Conseil d’Etat, providers or concessionaries generally have to take into consideration the variations of costs when they bid for contracts under a fixed tariff rate. However when the increments are such that exceed the limits of what could have been foreseen by the parties at the time of contracting, the dispute must be presented to a first instance judge in order for adjustment.115
It is important to emphasize that under French law, the Doctrine of Unforeseeability (Imprévision) only applies to administrative contracts. According to Marcel Planiol, a well-respected treatise writer of the early twentieth century, “one should not compare these two rules, for the administrative tribunals are inspired solely by the necessity of assuring public service, and do not modify the contract except under such necessity.”116 More recently, a North American scholar concluded that:
[I]n France, the théorie de l’imprévision did not develop into anything more than a method for relieving governmental contractors of unforeseeable hardships to insure the uninterrupted functioning of public services. In practice, the theory has been applied only to three contracts 1) public works, 2) governmental supplies, and 3) concessions such as gas and electricity. Attempts to expand the doctrine of imprévision to private contracts have been regularly frustrated by the Cour de Cassation, France’s highest court, which has been inclined to excuse performance of contractual obligations only if such performance is literally impossible.“117
As was mentioned in the introduction in the United States the law regarding excuses for non-performance of contracts do not have the judicial and doctrinal importance that they do in civil-law countries such as Germany and Italy. Taking into consideration the economic reasons mentioned at the beginning of this chapter, we must also consider that the equity jurisdiction (even when absorbed by common law, as was the case in the United States) provides the decision-maker with considerably more flexibility to evaluate circumstances that “shock the judge’s conscience” regarding what is fair and equitable.118
On the other hand, the U.C.C. provides for various excuses for non-performance, including a sui generis version of the subjective injury (lesion) under Section 2–302.119 The U.C.C. also provides a rule on the impossibility to perform under Section 2–607120 and on the impracticability to perform under Section 2–615.121
In United States judicial practice it is not easy to distinguish between the doctrines of impossibility and impracticability to perform. For example, in a state court decision122 in which the issue was the contractual responsibility of a railroad company for the suspension of services as a result of the expropriation of land close to the areas where they receive and provide services that ultimately would impede their normal functioning in the overall area, the court defined the excuse for non-performance as follows:
Where, from the nature of the contract, it is evident that the parties contracted on the basis of the continued existence of the person, thing, condition, or state of things, or of facts, to which it relates, the subsequent perishing of the person or thing, or cessation of existence of the condition or state will excuse the performance, or terminate the contract, a condition to that effect being implied, in spite of the fact that the promise may have been unqualified … limited to the situation where neither party is at fault and neither has assumed the risk. It has been referred to as the doctrine of supervening impossibility of performance.
However, the same court also cited the Restatement of the Law of Contracts, V. II, Chapter 14, Section 454, and Section 457 when providing that: “In the Restatement of this Subject, impossibility means not only strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved.”
From this it might be understood that the distinction can be between what is physically and legally impossible and what can lead to economic ruin and therefore be impracticable. Nevertheless, such an inference would not result from the precision of these concepts. The same is true for the doctrine of the “frustration of the purpose of the contract,” as its formulation continues to be amorphous and thus, its application to cases of impossibility and impracticability become uncertain. As it was stated in a 1956 decision of the House of Lords in the case of Davis Contractors Ltd. v. Fareham U.D.C.:
[F]rustration occurs whenever the law recognizes that, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for 1157would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.123
Instead of the customary factual and legal conclusions found at the end of expert opinions, I have included some of the sections of the Restatement 2nd of the Law of Contracts. The purpose of this is to allow the reader to recall the information previously discussed. This review will require that the reader compare the scope of the provisions that will follow with the contractual excuses for non-performance discussed throughout this chapter, including: The Rebus Sic Stantibus Clause, Contractual Presuppositions, the Basis of the Contract or Basis of the Transaction, Unforeseeability and Excessive Onerousness.
Restatement 2nd, Chapter 11—Impracticability of Performance and Frustration of Purpose124
Section 261 Discharge by Supervening Impracticability
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.
Section 262 Death or Incapacity of Person Necessary for Performance
If the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.
Section 263 Destruction, Deterioration or Failure to Come into Existence of
Thing Necessary for Performance
If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.
Section 264 Prevention by Governmental Regulation or Order
If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made.
Section 265 Discharge by Supervening Frustration
Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence 1158of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.
QUESTIONS
What arguments would the reader advance in favor of a liberal application of the aforementioned contractual excuses for non-performance, especially with respect to excessive onerousness? What arguments would she use against the proposed liberal application? How much have markets in countries like France, Mexico or Uruguay suffered because of the lack of excuses like those provided in German and Italian law? Apart from these excuses, are there any other means under the reader’s legal system to avoid the excessive onerousness of contractual obligations without affecting the predictability of the law of contracts?
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1 See Nagla Nassar, Sanctity of Contracts Revisited: A Study in the Theory and Practice of Long-Term International Commercial Transactions 201 (Nijhoff, 1998), citing ICC Award in case no. 1512.
2 Pothier, I Obligations, at 37.
3 Id. at 14.
4 Roberto Lara Velado, Introducion al Estudio del Derecho mercantil 205 (1969). It states:
Consequently, two obligations are derived from the sale agreement: 1) the obligation of the seller to convey to the buyer the ownership of the object sold; and 2) the buyer’s obligation to pay to the seller the price for the object bought. Both performances are deemed equivalent.
Id. (translation by author).
5 Cód. Civ. (El. Sal.) art. 1312 (1858). It states:
The onerous contract is commutative when each of the parties obligates itself to give or do something that is regarded [by the other party] as equivalent to what the other party must give or do; and if the equivalent [performance] consists of an uncertain contingency of profit or loss, then it is known as aleatory.
Id. (translation by author).
6 Lara Velado, supra note 4, at 200. It states:
The fair price of objects, as well as the current market price will be determined in accordance with any of the following methods, each displacing the other in the order listed: 1) Official price lists when these are determined by the government; 2) Price lists issued by banks, stock exchanges and chambers of commerce, deeming them as evidentiary appraisal documents; 3) Experts appraisal.
Id. (translation by author).
7 See Cód. Com. (El. Sal) art. 963 (1983). It states: “In the absence of official lists to determine the fair price and current market price, these will be determined by the lists issued by banks, stock exchanges or the chamber of commerce. In the absence of these lists, prices will be determined by experts.” Id. (translation by author).
8 Cf. Sentencia de 12 junio de 1956, cited in Augusto Pino, La Eccessiva Onerosita Della Prestazzione 8 (Cedam, Padua 1951), Federico de Mallol, La Excesiva Onerosidad de la Prestacion 72 (Federico de Mallol trans., Bosch, Barcelona, 1959) [hereinafter Pino & Mallol].
9 See Cód. Com. (El. Sal), supra note 7, art. 998 (as an example of a mandatory provision under Salvadoran commercial law). It states: “Parties cannot modify the legal regime of caducity [lapsed rights]; neither can they waive it if set forth by law.” Id. (translation by author).
10 Cód. Com. (Hond.) art. 757 (1950). It states:
If a contract of continued, periodic or deferred performance becomes excessively onerous to one of the parties as a consequence of unforeseen or extraordinary acts, the affected party can request its resolution with the consequential effects established under Article 750. The other party may proceed as indicated in Article 755.
Id. (translation by author). Art. 750 of the Honduras Commercial Code states: “The resolution of a contract as a result of non-performance has retroactive effect among the parties, excluding those stipulations already performed under contracts of continued or periodic performance.” Id. art. 750 (translation by author). And art. 755 of the commercial code explains: “The defendant may oppose to the resolution if it offers an equitable modification of the contract.” Id. art. 755 (translation by author).
11 See Mario Beltramo, I The Italian Civil Code and Complementary Legislation (Mario Beltramo et. al. trans., 1996) [hereinafter Beltramo I], and Mario Beltramo, II The Italian Civil Code and Complementary Legislation (Mario Beltramo et. al. trans., 1996) [hereinafter Beltramo II].
12 See Republica de Honduras, Codigo de Comercio 6–7 (Ariston ed., 1950). Despite the rejection of fascist or authoritarian ideas, this works adopts the C.C. (Italy) concept of “empresa” and its “massive” acts of commerce as central to that code’s scope.
13 Lara Velado, supra note 4, at 203. See also Cód. Com. (El. Sal), supra note 7, art. 965 (translated by author).
14 Id. art. 963. This article, as does C.C. (Italy) art. 1474, addresses the issue of fair price, especially when it has not been stipulated in the contract. Both provisions rely on the negotiations between the parties or on the prices customarily fixed by the seller in comparable transactions, or on the prices publicly listed whether in the form of stock exchange or other public market quotations.
15 C.C. (Italy) art. 1453 (translation by author).
16 See id. arts. 1454 & 1456.
17 See infra chs. 28–30.
18 See, e.g., § 8:7(J).
19 C.C. (Italy) art. 1447 (translation by author).
20 Id. art. 1425.
21 For these vices of consent, see id. arts. 1427–33 (mistake); 1434–38 (force, duress and coercion); 1439–40 (fraud and malice).
22 Id. art. 1428 (translation by author).
23 Id. art. 1429 (translation by author).
24 See Carlo Braccianti, Degli Effetti Della Eccessiva Onerosita Sopravenienti Nei Contratti 62 (2nd ed. 1947). On March 16, 1942, the Italian Minister of Internal Affairs (or Ministro Guardasigilli), in an explanation to the then proposed art. 1467 (Relazione al rogetto Ministeriali delle Obbligazioni), stated: “Thus, i[t] introduced expressly and generally for contracts with reciprocal performances, the principle of implicit subjection to the clausula rebus sic stantibus …” Id.
25 See Pino & Mallol, supra note 8, at 72. These sources discuss where the reliable sources showed that the clause was applied indistinctively to “all legal relations … of private and public law.” Id.
26 Id. at 133.
27 See infra § 27:4(H)(1).
28 See Glossary, “Nachfrist.”
29 C.C. (Italy), supra note 14, art. 1454.
30 Id. art. 1469. See Glossary, “Aleatory Contracts.”
31 F. Messineo, II Manuale di Diritto Civile e Commercial 203 (7th ed., 1946), cited in Braccianti, supra note 24, at 74.
32 Cód. Civ. (El. Sal.), supra note 5, art. 1312 (translation by author).
33 C.C. (Italy), supra note 14, art. 1469. It states: “The provisions of the preceding articles do not apply to contracts which are aleatory by their nature or by the intention of the parties.” Id. (translation by author).
34 See generally Braccianti, supra note 24.
35 Id. at 74.
36 Corte di Cassazione Civil, Cass. Civ. I., 1985, n.3730.
37 See Corte di Cassazione Civil, Cass. 7 giungo 1991, n. 6542 Foro It. Rep. 1991, n.401.
38 C.C. (Italy), supra note 14, art. 1341.
39 Pino & Mallol, supra note 8, at 139. For a definition of a dispositive provision see Luis Ribo Durán, Diccionario de Derecho (not dated). It states: “In contrast to the imperative are the so called dispositive norms, also known as ius dispositivum, which are those that the private parties can apply, incorporating them or replacing them as agreed by the parties …” Id. (emphasis added).
40 Corte D’Appello di Genova, sentenza 9 maggio 1984, Foro Italiano I, 1985.
41 Id.
42 Id. at 267.
43 Sentenza, Trib. Napoles, 13 marzo 1947, Sorrentino c. Filippone, Foro Italiano, at 656.
44 As it was discussed, this contractual power is granted by the second paragraph of art. 1341 of the Italian Civil Code. For case law affirming this rule, see Sentenza, App. Milan, 15 Iunnio 1948, L’Ausiliare c. Borrelli, en Riv. dir. comm., 1948, II, p. 360, cited in Pino & Mallol, supra note 8, at 88.
45 Id. at 89 (it lists more than a dozen appellate court decisions).
46 Tribunale di Monza, 29 marzo 1993, Foro It. I, 1994, at 916, 922, citing Cass.14, dicembre 1982 n.6867, Id., nn 292–294; 18 ottobre 1978, .4647 id.; Rep. 1978, 47 Id. at 917. Case Annotation identified as S. di. Paola at 920.
48 Giuseppe Mirabelli, Comentario del Codice Civile, Delle Obbligazioni Dei Contratti in Generale 656 (1980) (citing different sources).
49 Id.
50 Corte D’Appello di Genova, sentenza 9 maggio 1984, Foro Italiano I, 1985, at 266, 267. See also Paolo Cendon, IV Comentario al Codice Civile 859 & 863 (1991) (with reference to Cass. 2684/55 that took into consideration the “alle qualità dei contraenti”—the capacity and status of the parties).
51 For examples of “normal risks” that are excluded as causes for the remedy of excessive onerousness, see also Cass. 2904/87, Cass. 1913 /85, and Cass.1/83, id. at 863.
52 Id. at 860.
53 Pino & Mallol, supra note 8, at 150.
54 Id. at 155.
55 Id.
56 Id. at 156.
57 Mirabelli, supra note 48, at 656.
58 Id. at 25.
59 See supra note 46 & accompanying text, on the Monza Appellate decision. See also Cendon, supra note 50, at 859–860.
60 Id.
61 Pino & Mallol, supra note 8, at 56–57 (includes citations of authors with an opposite point of view).
62 See Case 8873, 1997 ICC Int’l Court of Arbitration (English abstract) available at http://www.unilex.info/case.cfm?pid=2&do=case&id=641&step=Abstract (on file with this author).
63 See Relazione al Progetto Ministeriale, No. 246, cited by Braccianti, supra note 31, at 99. Doctrine points this out based on the Relazione Ministeriale of the Italian Ministry of Justice. It states,
The law of excessive onerousness does not cover contracts where only one of the parties is obligated (for example, donations of deferred execution). Because such a contract does not involve reciprocal performances, it is not conceivable that one of the parties will offer a performance designed to stabilize an imbalance …
Id.
64 C.C. (Italy), supra note 14, art. 1467. This article only applies to pending-deferred performances, not to those already executed. See Cassazione, 13 dicembre, 1980, no. 6470 p. 178, Societa Fina Italiana v. Rescaldini.
65 Tribunale di Monza, Foro It. 1994, at 916, 922, citing Cass. 14 dicembre 1982, n. 6867, For example, if the plaintiff fails to prove to the court that the increase in costs was not caused by his own delay in acquiring raw materials. Similarly, art. 1467 of the Italian Civil Code does not apply in the case where a supplier fails to prove that it was impossible to comply with his contractual obligation with the raw materials acquired before there was an increase in its price. Arch.ric.giur., 1948, at 170, Dict., 7 gennaio 1947, cited in Pino-Mallol, supra note 8 at 27.
66 Pretura di Roma, Ordinanza 24 novembre 1984, Coc. Sassoufulfin e Soc. inocea c. Soc. Camar, cited in Braccianti, supra note 31, at 13.
67 See Pino & Mallol, supra note 8, at 49–51. Given that they lack a measuring device, such as money, to establish its onerousness.
68 Cass.7 iunio 1948, Quattrocchi c. Modo, Giur. Compl. Cass., 1948 III. p. 76, cited in id. at 58.
69 Cass. 6464/80.
70 Cód. Civ. (Arg.) art. 1198 (translated by author).
71 Id.
72 BGB art. 157.
73 See supra ch. 26.
74 See Aziz T. Saliba, Rebus sic stantibus: A Comparative Survey, 8 Murdoch Univ. Elec. J. L. 1, 2 (2001). As noted:
Rebus sic stantibus should not be confused with force majeure. Force majeure excuses the obligor to perform only if there is an irresistible (and unforeseeable) obstacle. In force majeure, the performance must be physically or legally impossible and must not be merely more onerous to perform. Thus, in a nutshell, the fundamental difference is that, unlike rebus sic stantibus, force majeure does not include economic hardship nor even economic impossibility.
Id. (emphasis added).
75 See the numerous citations of doctrine found in Lily R. Flah and Miriam Smayevski, Teoria de la Imprevision, aplicacion y alcances, doctrina y jurisprudencia (1989).
76 2a Instancia, Córdoba, Marzo 28 de 1980, Dipietro y Navili Soc. Col. Torres de Horrock, Maria y Otros. La Ley, T. 1980B at 420.
77 Id. at 423.
78 Id. at 424.
79 CNCI v. Sala C., Noviembre 5, 1978, Busetti, Oscar J.y otros c. Asociación Civil Santísima Cruz. La Ley, 1980 D, at 744.
80 Id.
81 Montegriffo Nestor y Otra c. Asociación Civil Santísima Cruz R. D.J.1979–7–13 sum.
49 La Ley, Repertorio XXXIX, A-1, at 402 (1979).
82 Cód. Civ. (Para.) art. 672 (1985) and Cód. Civ. (Arg.) art. 1198. Both of these articles followed the Italian model, which states:
In contracts of deferred performance, if supervening unforeseen and extraordinary events would make the performances excessively onerous, the debtor may claim the termination of the contract’s pending performances. Termination will not apply when the supervening onerousness is considered within the normal risks of the contract, or if the debtor was in fault. The defendant may avoid the resolution of the contract by offering an equitable modification of it. If the contract was unilateral, the debtor may claim the decrease in the value of the performance or an equitable modification as to the way in which to execute it.
C.C. (Italy) art. 1467 (translation by author).
83 John Philip Dawson, Judicial Revision of Frustrated Contracts: Germany. 63 B.U.L. Rev. 1039 (1983). In this section, my opinion summarizes the study in this article. Citations of the BGB are from BGB (Goren, 1994).
84 BGB § 275 ¶ 1. It states: “The debtor is relieved from his obligation to perform if the performance becomes impossible because of a circumstance, for which he is not responsible, occurring after the creation of the obligation.” Id.
85 Id.
86 It should be recalled that Windscheid, supra §§ 12:1 & 12:2, was a central figure of the German pandects during the second half of the XIX Century and a member of the first drafting Commission of the BGB.
87 Dawson, supra note 83, at 1044. It discusses a contract to manufacture a tugboat, to be delivered after the war; by 1919, and that its production cost had tripled.
88 Id. at 1044 n.13 (includes citations of authorities).
89 Id. at 1040 and 1046 (citation omitted).
90 Id. at 1046.
91 Id.
92 BGB (Goren, 1994), supra note 83, § 242.
93 Dawson, supra note 83, at 1039 & 1052. However, as noted by Dawson, it was never envisioned by this author that the courts would use his theory to fully review the terms and conditions of contracts. Id.
94 Id. at 1047.
95 Id. at 1048.
96 Id. at 1048–1049.
97 Id. at 1071 (citation omitted).
98 Id.
99 Id. at 1072.
100 Id.
101 Id.
102 Id. at 1075.
103 Id.
104 Id. According to Professor Saliba, in Brazil, the first judicial intervention in the same fashion described by Dawson for German law was in a 1932 decision (without further citation) in which a lessee of a building property of a religious group in Rio de Janeiro decided to exercise a purchase option that had been stipulated in a much lower price than that of the building’s market value. The Judge of First Instance held that the imbalance between the performances would have been so clear that the rebus sic stantibus doctrine had to be applied to that contract. Oliveira, José de Anisio, A Teoria da Imprevisão nos Contratos (1991), cited in Saliba, supra note74, at 7 n.19.
105 See Dawson, supra note 83, at 1080.
106 Id. at 1081.
107 See, e.g., id. at 1081.
108 See Federal Act on the Amendment of the Swiss Civil Code, (Part Five: The Code of Obligations) (Status as of Jan. 1, 2013) art. 373 ¶ 2 (March 30, 1911), available at http://www.admin.ch/ch/e/rs/2/220.en. pdf.
109 1st Civil Division, October 10, 1933, BGE 59 II 372, translated in Rudolf B. Schlesinger et. al., Comparative Law 816 (1987)
110 Id. at 40–41.
111 See Boris Kozolchyk, The Commercialization of Civil Law and the Civilization of Commercial Law, 40 La. L. Rev. 3, 14–16 (1979–1980) (in relation to the principle of strict interpretation of contracts and the so-called contractual justice).
112 Saliba, supra note 74, at 3.
113 Compagnie Generale d’Eclairage de Bordeaux v. Ville de Bordeaux, Conseil d’Etat, March 30, 1916, D. 1916. III.25 (concl. Chardenet, note), S. 1916. III.17 (concl. Chardenet, note Hauriou) cited in Von Mehren & Gordley, the Civil Law System, at 545.
114 See the commentary to this decision, Saul Litvinoff, Force Majeure, Failure of Cause and Theorie de l’Imprevision: Louisiana Law and Beyond. 46 La. L. Rev. 1, 15 (1985–1985).
115 See the discussion of this decision in Saliba, supra note74, at 3 & 4. See also Litvinoff, supra note 114, at 15.
116 Marcel Planiol, Treatise on Civil Law § 1168A (11th ed. 1939).
117 Saliba, supra note 74, at 4 (emphasis added) (citation omitted).
118 Id. at 7. According to Professor Saliba, Uruguay is the only country of the MERCOSUR that does not provide for a doctrine equivalent to the rebus sic stantibus. He ascribes this absence to the fact that art. 1291 of the Civil Code of Uruguay was inspired by arts. 1134 & 1135 of the C.Civ. (Fr.), in the same way as art. 1796 of the Mexican Federal Civil Code. Id.
119 U.C.C. § 2–302 (2012). It states:
(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
Id.
120 U.C.C. § 2–607 (2012).
121 U.C.C. § 2–615 (2012).
122 Kansas, Oklahoma & Gulf RY. Co. v. Grand Lake Grain Co., 434 P.2d 153 (1967).
123 Davis Contractors Ltd. v. Fareham Urban DC, [1956] A.C. 696 (H.L.) [696] (appeal taken from Eng.) (emphasis added).
124 Restatement (Second) of Contracts, §§ 261–265 (1981).