Unforeseen hardship and rescission of a contract
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the claim for rescission in contracts binding on both sides, and an agreement that the contract is to be treated as rescinded of itself.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parties may provide that, on a failure to perform the obligations arising from the contract, it is to be regarded as rescinded of itself, without a judicial judgment, under article 178.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
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.
Related topics and articles
- 01Agreed compensation, and when it may be reducedAgreed compensation in Civil Code article 170: when it is due, when it may be reduced, and when more may be claimed.
- 02What does the Civil Code govern in a contract?How a contract is formed and becomes binding under Civil Code No. 40 of 1951: offer, acceptance and subject-matter.
- 03Drafting a contract when dealing in BasraDrafting a contract when dealing in Basra under the federal Civil Code, followed from Baghdad.
- 04Points to review in a contract before signingMatters to review before signing: parties and authority, subject-matter, time, rescission, compensation and language.
- 05A consultancy contract, and how it differs from a contract of employmentConsultancy and employment contracts under Labour Law No. 37 of 2015, including article 37 on the written contract.