Article 1.

3 Binding character of contract

A contract validly entered into is binding upon the parties. It can only be modified or terminated in
accordance with its terms or by agreement or as otherwise provided in these Principles

I. Pacta Sunt Servanda
- Art. 1.3 proclaims the principle of Pacta sunt servanda ( i.e every contract is binding
on the parties and must be performed by them in good faith.)
- By entering into a contract, the parties declare their intention to be bound (Arts 2.1.1
and 2.1.2) and create a contractual obligatio (Latin for being bound in return for or
because of something)
- By agreeing to be bound, the parties also agree that in case of non-performance, the
aggrieved party will be entitled to remedies.
- These remedies are spelled out in Chapter 7 of the PICC, which shows that the
principle pacta sunt servanda is not implemented in its purest form in the PICC.
Especially with regard to the question of specific performance, the PICC have to
some degree embrace the concept of efficient breach in Art 7.2.2(c) by denying
specific performance if performance can be reasonably obtained from another source.
- In summary, Art 7.2.2(c) undermines the principle of pacta sunt servanda of Art 1.3 by
depriving the obligor of some of the benefits of the contract, namely the certainty that
the contract will be fulfilled unless there is a case of force majeure (Art 7.1.7).

II. Modification and termination of contract
- In principle, modification or termination requires an actus contrarius that needs to be
based, like the contract itself, on agreement.
- The archetype of such actus contrarius is an agreement at the end of renegotiations of
the contract amounting to a partial or total release of a right by one of the parties (Art
5.1.9)
- Modification and termination can also result from a clause in the contract itself that
grants an option to either modify or terminate the contract. Although the exercise of
this option is unilateral, it operates on the basis of an anticipated assent to such a
request and thus agreement on the possibility of exercising the option.
- A contract may also be modified and terminated against the will of one of the parties
if specific provisions of the PICC tell the court to decree or to recognize such a
change. The modification of the contract without agreement is provided for in Art
3.10(2) and (3) for cases of gross disparity and in Art 6.2.3(4)(b) for cases of hardship.
- The termination without the other partys assent is possible under Art 6.1.16(1) for
cases in which a necessary permission is neither granted nor refused within a
reasonable period of time; under Art 6.2.3(4)(a) for cases of hardship; and, most
importantly, under Arts 7.3.1 and 7.3.3 for cases of non-performance and anticipatory
non-performance