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An extremely important aspect in contract management is the unpredictability theory. This theory can greatly impact the rights and obligations of one of the parties, completely unbalancing the rights and obligations between them and even making the contract unfair to the detriment of one of the parties.

The unpredictability theory has ancient roots, traceable back to Hammurabi's Code, in 1772 B.C. A decision at the time referred to a devastating event that would affect a specific harvest, excusing the debtor in that scenario. Therefore, it remains implicit that the theory of unpredictability empowers the judge to scrutinize private contracts at the behest of one of the parties, when unpredictable facts inexorably affect the contractual balance between the parties.

Indeed, the theory of unpredictability has always been one of the exceptions to the Latin legal broach of pacta sunt servanda, which means that pacts must be upheld, that is, that the written and signed contract must be fulfilled. Notably, not only does the unpredictability theory makes exception to the pacta sunt servanda, but abusive, void, or voidable contractual clauses are also exempt from the signatory’s compliance obligation. This is because, logically, if there is an exegesis conflict between the parties, the issue must be submitted to an arbitrator or the judiciary.

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Rebus Sic Stantibus Clause

A quintessential formal instrument of the unpredictability theory is the rebus sic stantibus clause, as aptly defined by Nelson Zunino Neto in his article in the digital periodical Migalhas. The author explains that the clause allows for a review of the contract conditions for deferred or successive performance if, at the time of execution, an unforeseen, reasonably unpredictable, and not attributable to the contracting parties change occurs in the circumstances surrounding the performance of the contract, causing imbalance in the relationship of the parties. This provides an advantage at the expense of excessive burden borne by the other party.

Professor Fábio Ulhoa Coelho defines the rebus sic stantibus clause as being the presumption, in commutative contracts of successive treatment and deferred performance, of the implicit existence of a clause in which the obligation to comply with the contract presupposes the inalterability of the factual situation. When a change in the factual situation due to an extraordinary (unforeseeable) event occurs, making compliance excessively burdensome for the debtor, the debtor may request the judge to partially or completely exempt them from the obligation. This clause gives rise to the Unpredictability Theory, which serves as an argument for a judicial review of the contract. Another example of extraordinary and unpredictable event would be the outbreak of a war.

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The Unpredictability and the Excessive Burden Theories in the Brazilian Civil Code of 2002

In 2002, the Brazilian civil code was reformulated, with the new law published under number 10,406/2002. At the time, four provisions were created, the first of which supported the unpredictability theory and the other three supported the theory of excessive burden. In particular:

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Below are the other 3 provisions that supported the excessive burden theory:

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The first of the articles is found in Book I – Obligations Rights, in Title III – Compliance and Extinction of Obligations, in Chapter III – The Object of Payment and its Proof. The three articles mentioned above are found in Book I – Obligations Rights, in Title V – Contracts in General, in Chapter II – Contract Termination, in Section IV – Termination due to Excessive Burden.

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Precedents and the opinion of jurists

The prevailing opinion among jurists currently advocates that there is a straightforward difference between the excessive burden theory and the unpredictability theory. In the excessive burden theory, it falls upon the injured party to demonstrate the occurred disadvantage, through no fault of their own, and then request a review or even termination of the contract. Conversely, in the unpredictability theory it is up to the party to demonstrate that the excessive burdensomeness for one of the parts actually resulted from supervening, extraordinary, and unpredictable fact. This is not always easy to prove in the case records.

The reformed text of the Brazilian civil code of 2002 no longer requires the rebus sic stantibus clause, so that the party could seek review or termination of the contract since the obligation has become excessively burdensome due to an unforeseeable fact. However, decisions from higher courts encourage parties to adopt the rebus sic stantibus clause in their contracts, even if implicitly.

The criticality with which judges observe the issue of unpredictable facts can be demonstrated in the records of the Special Appeal #945,166, pending at the Brazilian Superior Court of Justice (STJ). In this case, a farmer argued that, due to climate change and pests, there was an increase in the prices of soybeans and agricultural inputs. However, appellate judge Luis Felipe Salomão, judge-rapporteur of the appeal, in his decision in 2012, interpreted that the contractual termination due to excessive burden requires the occurrence of an extraordinary event, impossible for the parties to foresee, and changes that fall within ordinary risks are not enough.

Also, according to the judge, the presence of Asian rust in the crop and price variations do not constitute excessive burdensomeness, as the alleged unforeseen events are inherent to the business. Furthermore, the judge-rapporteur stated that fluctuations in the price of soybeans are presumed at the time of signing the contract, given that it is a product traded on the stock exchange, and subject to international buying and selling demands. As for Asian rust, the judge-rapporteur understood that it is not an unpredictable fact, as the disease had already affected Brazilian crops since 2001 and, according to studies by the Brazilian Agricultural Research Corporation (Embrapa), there was no way it could be eradicated at that time, but only kept under control by farmers.

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Model of Rebus Sic Stantibus clause

Finally, a model for rebus sic stantibus clause is included below, which can be used in a contract to be signed between two or more parties:

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MODEL OF REBUS SIC STANTIBUS CLAUSE

1. General Principle

The parties acknowledge that this contract was signed based on the factual and legal situation existing at the time of its execution, and that the circumstances that led to its preparation may undergo significant changes over time.

2.Legal Grounds

Both parties recognize that maintaining contractual balance is directly related to the permanence of the essential assumptions that support its execution.

3. Subsequent Changes

If extraordinary and unpredictable changes occur in economic, political, social, or legal circumstances that make the performance of this contract excessively burdensome for one of the parties, thereby compromising the contractual balance initially established, both parties undertake to renegotiate in good faith the terms and conditions of this contract aiming to restore this balance.

4. Renegotiation Mechanisms

The parties agree to establish specific mechanisms for renegotiation, which may include, but are not limited to: a. Price review; b. Adjustment of deadlines; c. Modification of contractual clauses; d. Other adjustments that prove to be necessary to restore contractual balance.

5. Good faith

The parties undertake to conduct any renegotiation process in good faith, seeking solutions that are mutually satisfactory and preserve the legitimate interests of both parties.

6. Limitations

This rebus sic stantibus clause will not apply to changes resulting from foreseeable, ordinary facts or that were reasonably contemplated by the parties at the time of entering into this contract.

7. Validity

This clause will remain in force throughout the term of this contract and may be invoked by the parties whenever necessary to ensure contractual balance in the face of unforeseen and extraordinary circumstances.

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