Hardship

Hardship is an exception to the principle that contracts must be kept. If an extraordinary event after conclusion severely disrupts the balance between performances, holding the debtor strictly to the contract may be contrary to good faith.

Conditions (TCO Article 138)

• An extraordinary event unforeseen and unforeseeable by the parties at the time of contracting
• The event arises from a cause not attributable to the debtor
• The existing facts change to the debtor’s detriment to such an extent that demanding performance would be contrary to good faith
• The debtor has not yet performed, or performed while reserving its rights arising from the excessive difficulty

Consequences

• Adaptation: The debtor asks the court to adapt the contract to the new circumstances; the court may change the price or other terms.
• Rescission: If adaptation is impossible, the debtor may rescind.
• Termination: In continuing contracts, termination is generally used instead of rescission.
• The provision also applies to foreign currency debts.

Difference from Force Majeure

Force majeure makes performance impossible and extinguishes the obligation. With hardship, performance remains possible but has become excessively difficult, so the result is adaptation rather than extinction.

Merchants and Contract Clauses

Merchants, as prudent businesspersons, are expected to anticipate market fluctuations reasonably, so ordinary exchange rate and price movements are not grounds for adaptation. Price adjustment, indexation and renegotiation clauses in long-term commercial contracts help preserve balance without litigation. For adaptation of foreign currency rents see Rent Determination Action.