Portugal - Regime of Modification and Suspension of Contracts in 10 answers


1. In light of a change of circumstances, should the party or parties opt in the first place to modify the contract and then to terminate it, or may they freely choose one of these aforementioned options?

The party or parties must consider modifying the contract in the first place and only if this is not possible or workable, consider the hypothesis of terminating it unilaterally, as well as the risks associated with this. The COVID-19 crisis has had a major impact on the execution of contracts, it’s estimated that the negative effects of the crisis will intensify with a second wave of the virus. Even though in practice it has been demonstrated that in the majority of cases the contracted parties obtained, through negotiation, a modification of the terms and clauses that were initially contracted, it is expected that in the future conflicts could intensify. Therefore, in this context of a change in circumstances the doubt arises about whether, in the terms and bases covered by article 437 of the Civil Code, the parties may opt straight away to terminate the contract or whether they must, in accordance with the principle of good faith, maintain the contractual relationship and modify the contract in line with the new circumstances. In fact, following normative principles, good faith is a guiding principle and the basis of normative conduct in contractual relationships. In this way, against a backdrop of a change of circumstances, even though the right to terminate the contract is a right that may be invoked by one of the parties, there exists, even though it isn’t standardised in legal doctrine, a duty of (re)negotiation and of cooperation, in the name of the legitimate expectations of both parties and with a view to reestablishment of the contractual balance, which consequently implies that the parties should choose to arrive at a consensus and modify the contract (if that’s possible and achievable).

 
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