In the context of changing economic conditions, increasing prices of raw materials and a high level of inflation, the question arises whether the parties to an already signed contract can amend its terms in relation to changing prices.
In the general case, the Bulgarian legal framework allows such a change either by mutual agreement or in the presence of an express stipulation in the contract. Some laws provide for the possibility of indexing the agreed prices of the contracts under certain conditions, for example the Law on Public Procurement.
ECONOMIC INTOLERANCE
An exception to the principle established in Art. 20a of The Law On Obligations And Contracts, is the institute of economic intolerance, which is regulated by legislation for the first time.
According to Art. 307 the court may, at the request of one of the parties, amend or terminate the contract in whole or in part, when such circumstances have occurred that the parties could not and were not obliged to foresee, and the preservation of the contract is contrary to justice and good faith.
It is necessary that there has been a change in the terms of the contract, which was not caused by any of the parties and could not have been foreseen by them when the obligation arose, i.e. they innocently could not foresee the change in economic conditions.
In addition, it follows that the preservation of the legal relationship is contrary to justice and good faith due to impaired equivalence of performance in the specific contract, since its performance has become excessively burdensome or almost ruinous for one party. This violation of equivalence is also unconscionable, as it is contrary to generally accepted criteria of honesty and integrity, i.e. the preservation of the bond relationship is socially unjustified, since despite the interest of the creditor, the debtor should not be forced to continue to comply with its terms.
Court intervention in economic insolvency
Intolerance within the meaning of Art. 307 of the The Law On Obligations And Contracts is a reason for achieving an amendment or termination of the bond relationship, when there is no agreement of the parties to this, and the objective economic situation, when it continues according to the original conditions, creates prerequisites for the occurrence of extreme injustice in the relations between the parties. This modification or termination can be achieved by the intervention of the court on the action brought by the interested party, which is constitutive in nature and brings about a change in the legal and property sphere of the parties in order to prevent such injustice.
At the same time, the ruling of the court on such a claim changes, resp. terminates the legal relationship in the future, before the prerequisites for seeking fulfillment of the obligations assumed by the contract have occurred, and not after the relationship has been terminated, broken or the counter-obligation has been fulfilled.
Unilateral contract amendment
Unilateral amendment of the contract, i.e. price indexation on initiative is possible only if such a clause is provided for in the contract. The specific provision of the contract should specify the specific circumstances under which the price, term or other conditions may be changed. Also, the contract should specify the amount by which the price will be increased, the term will be extended, etc.
Amendment of a contract when this is provided by law
A third option for amending the contract is when the circumstances under which the contract can be amended are provided for in law, for example the Public Procurement Act (PPA) and the Concessions Act. In this case, mutual agreement between the parties must again be reached on the specific parameters, but the circumstances that give grounds for one of the parties to request price indexation are specified in the law. For example, the Law on Concessions provides for the possibility of indexation of the contract price when:
In conclusion
The price update clause should be precisely specified to avoid legal disputes. Therefore, in the presence of such a case, do not hesitate to contact a competent lawyer who will provide you with adequate legal assistance.
