Pacta sunt servanda is a Latin phrase meaning “agreements must be kept.” In law, it refers to the idea that contracts, treaties, and other legal agreements create a binding obligation between parties, assuming they are legal. People cannot back out of this legal obligation unless they have a compelling reason to do so, like evidence that the circumstances surrounding the agreement were fraudulent, or proof that the agreement itself is not legal because it creates an obligation to do something illegal.
This legal principle dates to Roman civil law and is one of the keystones of the legal theory behind the mechanisms and enforcement of civil law. Pacta sunt servanda sets out a basis for complying with legal contracts and requires parties to legal contracts to make good on their obligations. People who do not honor contracts can be penalized in both civil and criminal courts, depending on the nature of the contract, the type of breach, and the parties involved.
This applies not just to contracts between individuals and companies, but also to international law. Under pacta sunt servanda, international treaties are also legally binding. If the members signed them without coercion and in full knowledge of the terms, they must fulfill the obligations established by those treaties. Breaching them can result in penalties like involving the international court in the dispute, as well as potentially fining or censuring the breaching party.
Once an agreement has been broken by one party, the other party is within rights to break it as well. Pacta sunt servanda creates both legal and social order by reminding people that they must make good on legal promises, and providing a mechanism for enforcing contracts. Once people start disregarding legal obligations, it can create a chain effect; a company doesn't pay an employee, the employee leaks trade secrets, the company sues for providing confidential information to competitors, and so forth.
There are circumstances where pacta sunt servanda does not apply. If a contract compels the commission of illegal acts, it is not legal. Likewise, if entering into a contract would create an illegal situation, as when someone marries without divorcing a prior partner in nations that bar bigamy, the agreement is also not legal. Furthermore, illegal circumstances like coercion, contracts signed by people lacking legal authority to do so, and contracts involving a party who is not considered legally capable of understanding and agreeing to contracts, also create illegal contracts.