Law Office ofAli Barakat
Preparing the wording of a contract

Unforeseen hardship and rescission of a contract

In briefIf unforeseeable exceptional general events occur and performance becomes so burdensome as to threaten a grave loss, the court may reduce the obligation to a reasonable limit, and every contrary agreement is void. In contracts binding on both sides, rescission may be sought after a formal notice, and the court may grant time or refuse if the breach is slight. An agreement on automatic rescission does not dispense from notice unless that is expressly agreed.

The binding force of a contract once it is formed is the starting point in article 146, first paragraph, and is set out in the Civil Code overview. This page follows the rule on exceptional events, the claim for rescission in contracts binding on both sides, and an agreement that the contract is to be treated as rescinded of itself.

Exceptional general events

Where unforeseen events of a general and exceptional kind arise, and as a result carrying out the contractual obligation — though still possible — becomes so heavy for the debtor that a serious loss is threatened, article 146, second paragraph, allows the court, after weighing each side's interest, to bring the heavy obligation down to a reasonable measure if justice so requires. A contrary agreement is void. The text looks for events of that kind, and for a burden that threatens a serious loss, not for ordinary difficulty. Bringing the obligation down to a reasonable measure is a power the court exercises after that weighing; one party may not make the change of its own motion. Because a contrary agreement is void, a clause that tries to shut out the rule does not stand against the text.

Complete impossibility is a different path, read in the rules on extinction of an obligation; hardship opens the way to reduction, not to automatic extinction.

Rescission in contracts binding on both sides

In a contract binding on both sides, a failure by one party to do what the contract requires allows the other, after a formal notice, to ask for rescission and for damages where there is cause, under article 177, first paragraph. The court may give the debtor time, and may refuse rescission where the shortfall is slight next to the obligation as a whole. The same text gives examples in hire, employment and sale, and in the option for defect; they are read in their place, and are not reduced here to a single rule for every contract.

The parties may provide that, on a failure to perform the obligations arising from the contract, it is to be regarded as rescinded of itself, without a judicial judgment, under article 178. That provision does not remove the need for a formal notice unless they have expressly agreed that none is needed. A contractual rescission clause does not, in principle, stand in for a formal notice, unless it is expressly agreed that notice is unnecessary.

The office follows a reading of these provisions from Baghdad, al-Yarmouk.

Legal basis and sources

  1. Civil Code No. 40 of 1951, articles 146, 177 and 178

Frequently asked questions

May the parties agree to exclude the rule on unforeseen hardship?

No. Article 146, second paragraph, provides that every agreement contrary to that rule is void.

Does an agreement on automatic rescission dispense from a formal notice?

No, unless the parties have expressly agreed that a formal notice is unnecessary, under article 178.

Always check the text in force and its amendments in the official source.

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