Frustration of contract, impossibility and COVID-19 in Spanish law

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Published in Thomson Reuters

This article provides guidance on termination of contract due to frustration and impossibility, and alteration of contract due to excessive hardship under the rebus sic stantibus doctrine, under Spanish law, in the context of COVID-19.

Frustration of contract and impossibility
In the event of frustration of contract, a party can seek to terminate the contract under Article 1124 of the Spanish Civil Code. This article states that a party may seek to terminate the contract if its counterparty chooses not to perform its obligations, or cannot perform them (performance is impossible).

Serving notice of termination on grounds of frustration
Generally an obligor can terminate a frustrated contract by giving notice to the obligee following the occurrence of an unforeseen event that renders the terms of the contract impossible to perform. The obligee may accept the termination or, alternatively, challenge the lawfulness of it.

Terms of the contract
Sometimes contracting parties agree specific provisions allocating risk between them which also apply in a context of frustration, so it is always necessary to check the contract terms. For example, in sale contracts, commonly the buyer bears most risks. Contracting parties must be careful in the negotiation of their contracts as risks and liabilities around frustration might not otherwise be distributed equally between them.

Notices and time limits
There are no mandatory rules around the serving or registering of notices, except as may be agreed between the parties in their contract. For example, the parties may agree on notices being sent by certified post or equivalent registration. It is common for contracts to prescribe provisions governing formal communications between the parties, and any such requirements should be complied with.

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