Change in circumstances

Clausula rebus sic stantibus or change in circumstances doctrine (사정변경/事情變更의 원칙) is referred to the doctrine dealing with what if the circumstances surrounding the contract change dramatically.

Take an example that X agrees to sell Y a quantity of widgets, but before delivery is made, the occurrence of some unprovided-for event like the outbreak of war or natural disaster makes X's performance either impossible or ruinously expensive. A court may hold X responsible despite the disastrous event, on the ground that parties should be held to the terms of their contract. Depending on the circumstances, however, a court may also excuse X from performance on the ground that the situation has changed so radically that the contract has effectively become a different one than that to which the parties agreed. The court may therefore conclude that it would be unfair to hold an onerously burdened party to its terms.

Key words
change in circumstances, impossibility, impracticability, frustration of purpose, nonperformance of duty, contractual relation

Similar concepts
Impossibility, impracticability, and frustration of purpose are common law doctrines that attempt to define what changed circumstances should be considered, and how drastic their effect must be, in order to justify discharge of contractual obligations.
 * Impossibility is an excuse for the nonperformance of duties under a contract, based on a change in circumstances (or the discovery of preexisting circumstances), the non-occurrence of which was an underlying assumption of the contract, that makes performance of the contract literally impossible. For such a defense to be raised, performance must not merely be difficult or unexpectedly costly for one party; there must be no way for it to actually be accomplished.
 * Impracticability is another excuse in common law of contracts for the nonperformance of a duty, where that duty has become unfeasibly difficult or expensive for the party who was to perform. Impracticability is similar in some respects to the doctrine of impossibility because it is triggered by the occurrence of a condition which prevents one party from fulfilling the contract. The major difference between the two doctrines is that while impossibility excuses performance where the contractual duty cannot physically be performed, the doctrine of impracticability comes into play where performance is still physically possible, but would be very burdensome for the party whose performance is due. Thus, impossibility is an objective condition, whereas impracticability is a subjective condition for a court to determine.
 * Frustration of purpose is a defense to enforcement of the contract. Frustration of purpose occurs when an unforeseen event undermines a party's principal purpose for entering into a contract, and both parties knew of this principal purpose at the time the contract was made. Despite frequently arising as a result of government action, any third party (or even nature) can frustrate a contracting party's primary purpose for entering into the contract. This concept is also called "commercial frustration".

Unfortunately, however, these doctrines have become a legal morass: While most agree that discharge should sometimes be granted, few agree on when or why. This lack of theoretical con- sensus has led to inconsistent case holdings, abundant doctrinal confusion, and a proliferation of unhelpful legal categories.

How to handle
Contractual obligations provide commitment, independently of the circumstances that can affect the parties between the beginning of their contractual relation and the performance of the contract. It is sometimes said that if an event is foreseeable, a party that makes a promise to perform necessarily assumes an obligation to perform, even if the occurrence of the event makes performance impracticable.

However, promises are contingent and not all contingencies can be spelled out ahead of time in a contract. Parties are incapable of reducing important terms of the arrangement to well-defined obligations. Such definitive obligations may be impractical because of the inability to identify uncertain future conditions or because of inability to characterize complex adaptations adequately even when the contingencies themselves can be identified in advance.

In the financial and economic crisis, doctrines related to the effects of adverse and unexpected change in circumstances are especially relevant. Parties of long-term contracts are subject to negative variations in the costs of their contractual promises that can affect the performance of the contract.

It is worthwhile to consider to what extent the solutions provided by the best jurisdictions and their case law can help parties in tuning the contract terms according to the new circumstances. Even to consider if there is some kind of right to breach the contract when it turns out to be harder than expected.