FIRST COURT DECISION IN SPAIN. REBUS SIC STANTIBUS

On 25 September 2020 the First Instance Court No. 81 of Madrid passed a judgment adopting precautionary measures in application of the rebus sic stantibus clause.

The doctrine of the rebus sic stantibus clause is a reasonable theoretical construction from an equity point of view but devoid of regulation. It is, above all, a clause of exceptional and extraordinary application.

The fact is that rebus sic stantibus is a Latin expression that can be translated as “things being as they are” and refers to a principle of Law by virtue of which it is understood that the stipulations established in contracts take into account the concurrent circumstances at the time of their conclusion, that is to say, any substantial alteration of these circumstances could modify those stipulations.

However, this clause vigorously clashes with the principle of contractual security, better known as pacta sunt servanda or “the pacts [agreements] are made to be fulfilled”, hence the exceptionality of the clause under consideration.

Consequently, only atypical and extraordinary situations caused by “absolutely unforeseeable circumstances” and resulting in an “exorbitant disproportion between the services provided by the parties” will lead to a loss of contractual security for the purpose of applying the rebus sic stantibus clause, according to the Spanish Supreme Court.

The first judgment passed in Spain in application of this exceptional clause, motivated by the critical economic scenario (as a consequence of the current health emergency situation) settles in a precautionary basis ––before the trial takes place, and in order to preserve the effectiveness of a possible definitive estimation of the claim–– the controversy between: (i) the lessee of a night club whose opening is not permitted from the time of the declaration of the state of alert and until further notice; and (ii) the lessor owner of the night club who did not accept to the lessee’s request to suspend the payment of the rent.

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