The coronavirus pandemic has caused an unprecedented human, health and economic crisis. In a moment when many companies and people must reinvent to deal with the impacts of the crisis, the fulfillment of contractual obligations is one concern, in particular those that have continued status, such as lease contracts.
It is not in vain that many people ask: Will coronavirus be a force majeure event, facilitating non-compliance, suspension and even cancellation of the contracts?
It is important to remember that the contracts exist to be fulfilled. The general rule in Brazilian law is “pacta sunt servanda“, which is the principle of the mandatory force of contracts, according to the actual contract between the parties.
However, there are some extraordinary and unforeseen situations, characterized as “fortuitous” and “force majeure”, which can guarantee a review of contractual clauses and a binding resolution of the contract. It is the theory of unpredictability (or ‘rebus sic stantibus’ clause), established in the Civil Code of 2002, that allows the review of the contract bases when the onerosity is such that it is impossible to comply with it.
On the other hand, there is the possibility of avoiding the termination of the contract, if the creditor approves of the equitable modification of the contractual conditions, in order to maintain the balance of the economic contract.
In the absence of objective criteria for adhering to the “excessive burden”, the Superior Court of Justice has established certain requirements for the application of article 478 of the Civil Code in a specific case:
- contract for continuous or deferred execution;
- extraordinary and unpredictable event;
- extreme advantage of another party.
In a preliminary analysis, the emergency situation caused by this coronavirus pandemic, has the characteristic of an exceptional and unpredictable “force majeure” event.
In this context, many companies have been able to “renegotiate” the contracts in court. he Judiciary has authorized the reduction of rents and the extension of deadlines for payment of debts, as they believe that the intervention of the Judiciary is necessary in this moment of crisis.
However, the request for total suspension of payments has been viewed with reservations by the Judiciary, as they understand that in cases of force majeure or unforeseeable circumstances, the law authorizes a party to terminate the contract or postulate the readjustment of the real value of the installment but not suspend the obligation.
Therefore, in a crisis situation like this, we need to keep in mind that:
- Both contractors are impacted by the COVID 19 pandemic;
- Both parties must honor the commitments already made to customers and suppliers;
- The entire production chain must be preserved and not just the economic interests of one of the parties;
- The economic balance of the contracts must be maintained.
Thus, even though the Civil Code allows the review of contractual clauses and even the termination of contracts due the pandemic, the extraordinary and unpredictable event cannot be invoked to justify the general breach of contracts.
Our Litigation Team remains at your disposal to clarify any doubts.
