Enhance Community Quarantine in Luzon: Its Effects on Contracts

Solimar A. Catacutan
John Wesley School of Law
Judge Cynthia Martinez-Florendo
Civil Law Review 2

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 Table of Contents

Introduction
Contracts, Obligations and Fortuitous Event
Enhanced Quarantine Period
Republic Act 11469 or Bayanihan Act of 2020
Effects of Enhanced Quarantine Period to Contracts
Conclusion
References

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Introduction:

On March 16, 2020, Philippine President Rodrigo Duterte declared the

entire Luzon area in the Philippines under "enhanced community quarantine" (ECQ)
which is effectively a total lockdown, restricting the movement of the population with
exceptions, in response to the growing pandemic of coronavirus disease 2019 (COVID-
19) in the country. Additional lockdown restrictions mandated the temporary closure of
non-essential shops and businesses. This quarantine came two days after the
implementation of the community quarantine of Metro Manila.
The quarantine is originally set to last until April 12, 2020, although, government
was considering to either extend or lift it after two weeks of its implementation. Duterte
said on April 6, 2020 that he is inclined to extend the quarantine up to the end of April
2020. The next day, his Cabinet Secretary, Karlo Nograles, said that the President
accepted the recommendation of the COVID-19 Inter-agency Task Force (IATF) to
extend the Luzon ECQ up until April 30, 2020.
The Luzon ECQ caused the mobilization of the Philippine government agencies
and local government units as well the passing of Republic Act 11489 or the "Bayanihan
to Heal as One Act" in order to fight the COVID-19 pandemic in the Philippines. There
are economic, environmental, political, social and cultural impact of the lockdown,
affecting around 57 million people being quarantined. 1
This pandemic greatly affected different walks of life and those of health,
economics, and others that usually in a normal routine prior to the pandemic. One of
those is the effect on different kinds of contract. how enhanced community quarantine
affected the contracts and obligations of the parties? The following premises and
explanations will, at least, shed light to the question.

1
https://en.wikipedia.org/wiki/2020_Luzon_enhanced_community_quarantine

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Contracts, Obligations and Fortuitous Event:
By codal provision, it is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something with respect to
the other, to give something or to render some service.2 It may also be defined as
a juridical convention manifested in legal form, by virtue of which one or more person
bind themselves in favor of another or others, or reciprocally, to the fulfillment of a
prestation to give, to do or not to do.(Rabuya, Civil Law Reviewer Volume II, 2017 ed,
p.173)
Obligations, on the other hand, is defined as a juridical necessity to give, to do or
not to do.3 A definition also provided by the jurisprudence states that an obligation is a
juridical relation whereby a person (called the creditor) may demand from another
(called the debtor) the observance of a determinative conduct (the giving, doing or not
doing), and in case of breach, may demand satisfaction from the assets of the latter. 4
While fortuitous event or caso fortuito may be defined as “any extraordinary
event which cannot be foreseen, or which, though foreseen, inevitable. In other words, it
is an event which is either impossible to foresee or impossible to avoid.” The essence of
a fortuitous event consists of being a happening independent of the will of the obligor
which happening, makes the normal fulfillment of the obligation impossible.
Foreseeability or inevitability is the fundamental consideration in imputing liability. (De
Leon, Comments and Cases on Obligations and Contracts, 2014 ed, p.77)

Republic Act 11469 or Bayanihan to Heal as One Act of 2020

The Bayanihan to Heal as One Act, officially designated as Republic Act No.
11469, is a law in the Philippines that was enacted in March 2020 granting
the President additional authority to combat the 2020 coronavirus pandemic in the
Philippines. The word "bayanihan" is a Tagalog word for communal work.5
Following the sharp increase of confirmed cases, Congress to hold special
sessions on March 23 to enact the Bayanihan to Heal as One Act upon his request,
which would "authorize the President to exercise powers necessary to carry out urgent
measures to meet the current national emergency related to COVID-19 only for three
months unless extended by Congress." The act would allow President Duterte to
"reallocate, realign, and reprogram" a budget of almost ₱275 billion ($5.37 billion) from
the estimated ₱438 billion ($8.55 billion) national budget approved for 2020, in response
to the pandemic; enable him to "temporarily take over or direct the operations" of public
utilities and privately owned health facilities and other necessary facilities "when the
public interest so requires" for quarantine, the accommodation of health professionals,
and the distribution and storage of medical relief; and "facilitate and streamline" the
accreditation of testing kits.6
2
Article 1305, New Civil Code
3
Article 1156, New Civil Code
4
Makati Stock Exchange, Inc. vs Campos, GR no. 138814, April 16, 2009
5
https://en.wikipedia.org/wiki/Bayanihan_to_Heal_as_One_Act
6
ibid

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Enhanced Community Quarantine of the Luzon Region:
On March 16, 2020, President Duterte declared an enhanced community
quarantine (ECQ) covering the entire Luzon Island. The duration of the ECQ is
presently from 17 March 2020 until 14 April 2020. However, it is extended until 30 April
2020 due to the increasing numbers of positive cases and mass testing for nCoV19 is
possible only on 14 April 2020. Key features of the enhance community quarantine
include: (a)strict home quarantine in all households limiting movement to accessing
basic necessities; (b) limited operations of private commercial establishments to those
providing basic necessities; and (c) suspension of mass public transportation and
restrictions on land, air, and sea travels. 7

7
https://www.bakermckenzie.com/en/insight/publications/2020/03/covid19-force-majeure-ph

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Effects of Enhanced Quarantine Period to Contracts:
The measures that are now implemented by the Philippine government greatly
affects the contractual obligations. The parties may establish such stipulations, clauses,
terms and conditions that they may deemed convenient 8 is the general rule. However,
this is not absolute, provided that they are not contrary to law, morals, good customs,
public order, or public policy9. The is what is called the liberty of contracts or freedom to
stipulate.
This might lead to confusion between the parties on what to do and what is not.
The Philippine Laws (the New Civil Code) and jurisprudence will provide insights and
guides to avoid such confusions regarding the party’s contractual obligation.
Contracts is one of the sources of the obligation. It is also states in the Code that
“Obligations arising from contracts shall have the force of law between the contracting
parties and should be complied with good faith” 10 it is safe to say that provision
regarding obligation may be used as same with contracts.
The New Civil Code Provisions
Fortuitous event generally exempts the debtor for the compliance of an obligation
and will not be held liable during the happening of such 11. If the obligor established the
following requisites, aside from the event being unforeseeable or unavoidable, he/she
can avail the benefit of fortuitous event, to wit:

 The cause of the breach of the obligation must be independent of the will of the
party seeking to be released from the obligation
 The event must be such as to render it impossible the fulfillment of the obligation
in a normal manner
 The party seeking release must be free from any participation in or aggravation
of the injury to the other party. ( Lasam vs Smith,45 Phil.657 [1923]).

No liability attaches notwithstanding a contractual breach when these requisites

are present. The absence of any of the above requisites would prevent the obligor from
being exempted. (De Leon, Comments and Cases on Obligations and Contracts, 2014
ed, p.79)

However, the rule is not absolute, it is also subject to exemption such as:

 when the law expressly so specifies, e.g. a possessor in bad faith is liable for
deterioration or loss of the thing possessed despite a fortuitous event;

 when it is otherwise agreed by the parties, i.e. by contractual stipulation; and

8
Article 1306, NCC
9
ibid
10
Article 1159, NCC
11
Article 1174, NCC

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  when the nature of the obligation requires the assumption of risks, e.g. business
risks that may be inherent in the nature of the business. 12

Atty. Rabuya also summarizes in his book different instances wherein the New
Civil Code provided cases where obligor still liable even in cases of fortuitous events:

 The obligor delays or has promised the same thing to two or more persons
who do not have the same interest.13
 The possessor in bad faith in every case. 14
 If the common carrier negligently incurs in delay in transporting the goods,
a natural disaster shall not free such carrier from responsibility. 15
 The borrower who uses the thing for a purpose different from that of
intended, delays in return, receives the thing under appraisal, lends it to a
third person, or saves his property instead of the thing borrowed. 16
 The depository who uses the thing without the depositor’s permission,
delays its return, or allows others to use it. 17
 The negotiorum gestor or the officious manager who undertakes risky
transactions, prefer his interest to that of the owner, fails to return the
property after the demand by the owner, or assumes management in bad
faith.18
 When the obligation to deliver a determinate thing proceeds from a
criminal offense, unless prior to its loss the person who should receive it
refused acceptance without justification. 19 (Rabuya, Civil Law Reviewer
Volume II, 2017 ed, p.47-48)

Article 1266 of the New Civil Code provides the release of the obligor from the
obligation when it is physically or legally impossible to perform without the latter’s fault.
There is legal impossibility when an act is prohibited by law or prevented by law (e.g.,
non-renewal of residence and work permit of an employee, preventing him/her from
continuing his/her work). On the other hand, there is a physical impossibility where an
act can no longer be accomplished by reason of its nature. This rule does not apply to
obligations "to give", such as the payment of rentals or the delivery of an object. 20

Although, force majeure or fortuitous event and impossibility to comply

(physically or legally) with the obligation are of the same effect with the result of the
obligation which is the release of the obligor (assuming that he is not at fault or he has
established the requisites) from the obligation, there’s a difference between them.
Fortuitous event focuses on inability of the contracting parties to comply in a normal
12
Article 1174, NCC
13
Article 1165, last par.,NCC
14
Article 552,par.2, NCC
15
Article 1740, NCC
16
Article 1942, NCC
17
Article 1979, NCC
18
Article 2174, NCC
19
Article 1268, NCC
20
https://www.bakermckenzie.com/en/insight/publications/2020/03/covid19-force-majeure-ph

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manner because of the happening of an unforeseeable or unavoidable event. The
parties may possibly comply with the obligation following the passing of the event.
However, the impossibility to comply with the obligation shows that there’s no possibility
to comply to legal and physical reasons or by the act of the third party. Moreover,
fortuitous event affects all obligations unlike the impossibility to comply which applicable
only to obligation to do.

The obligor’s obligation may also be extinguished if during the delivery of a

determinate thing, it is lost or destroy, without the obligor’s fault and provided that he is
not incurred in delay. That is the direct provision of Article 1262, paragraph 1. As an
exemption, the paragraph 2 of Article 1262 provide exemptions that even if there is no
fault on the part of the obligor or delayed will still held him liable, to wit:

 When the law so provides;

 When the stipulation of the parties provides;

 When the nature of the obligation requires the assumption of risk; and

 When the obligation to deliver a specific thing arises from a crime. (De
Leon, Comments and Cases on Obligations and Contracts, 2014 ed,
p.375)

The happening of a fortuitous event affect also the running period agreed upon
for the fulfillment of the obligation. In one case decided by the Supreme Court, the
Honorable Court through Justice Padilla said that “Fortuitous event relieves the obligor
from fulfilling a contractual obligation. The fact that the contracts make reference to "first
milling" does not make the period of thirty years one of thirty milling years. The term
"first milling" used in the contracts under consideration was for the purpose of reckoning
the thirty-year period stipulated therein. Even if the thirty-year period provided for in the
contracts be construed as milling years, the deduction or extension of six years would
not be justified. At most on the last year of the thirty-year period stipulated in the
contracts the delivery of sugar cane could be extended up to a time when all the
amount of sugar cane raised and harvested should have been delivered to the
appellant's mill as agreed upon. The seventh paragraph of Annex "C", not found in the
earlier contracts (Annexes "A", "B", and "B-1"), quoted by the appellant in its brief,
where the parties stipulated that in the event of flood, typhoon, earthquake, or
other force majeure, war, insurrection, civil commotion, organized strike, etc., the
contract shall be deemed suspended during said period, does not mean that the
happening of any of those events stops the running of the period agreed upon. It only
relieves the parties from the fulfillment of their respective obligations during that time —
the planters from delivering sugar cane and the central from milling it. In order that the
central, the herein appellant, may be entitled to demand from the other parties the
fulfillment of their part in the contracts, the latter must have been able to perform it but
failed or refused to do so and not when they were prevented by force majeure such as
war. To require the planters to deliver the sugar cane which they failed to deliver during
the four years of the Japanese occupation and the two years after liberation when the

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mill was being rebuilt is to demand from the obligors the fulfillment of an obligation
which was impossible of performance at the time it became due. Nemo tenetur ad
impossibilia. The obligee not being entitled to demand from the obligors the
performance of the latters' part of the contracts under those circumstances cannot later
on demand its fulfillment. The performance of what the law has written off cannot be
demanded and required. The prayer that the plaintiffs be compelled to deliver sugar
cane to the appellant for six more years to make up for what they failed to deliver during
those trying years, the fulfillment of which was impossible, if granted, would in effect be
an extension of the term of the contracts entered into by and between the parties. 21

The stipulation does not mean that the happening of a fortuitous event stops the
running of the period agreed upon. It only relieves the parties from the fulfillment of the
obligations during that time.

Republic Act 11469 or Bayanihan to Heal as One Act of 2020

There is a specific provision in the recently pass law, the Republic Act 11469 or
the Bayanihan to Heal as One Act of 2020, that affects contractual obligations. Section
4 (aa) and (bb) specifies different kinds of contract affected by the said law.
Such provisions of Republic Act 11469 directing different institution like banks,
quasi-banks, financing companies, lending companies, and other financial institutions,
public and private, including the Government Service Insurance System, Social Security
System and Pag-ibig Fund, to implement a minimum of a thirty (30)-day grace period for
the payment of all loans, including but not limited to salary, personal, housing, and
motor vehicle loans, as well as credit card payments, falling due within the period of the
enhanced Community Quarantine without incurring interests, penalties, fees or other
charges, persons with multiple loans shall likewise be given the minimum thirty (30)-day
grace period for every loan. 22 and Provide for a minimum of thirty (30)-day grace period
on residential rents falling due within the period of the enhanced community quarantine,
without incurring interests, penalties, fees, and other charges. 23
The grace period shall apply and will cover all loans from with principal or/and
interest falls due during the ECQ period. It will also give a grace period to any individual
who contracted loans from the covered institution. The said loan means all loan from the
covered institution granted to any individual and applies also to multiple loans. 24
The grace period provided for the RA 11469 has the following effects: (a)
Borrowers whose loan/s with principal and/or interest falling due within the ECQ period
shall be entitled to avail of the 30-day grace period without incurring interest on interest,
penalties, fees and other charges. For this purpose, no additional DST shall be imposed
as a consequence of the relief so granted. Further, no DST shall be imposed on credit
extensions and credit restructuring, micro-lending including those obtained from
pawnshops and extensions thereof during ECQ Period, and (b) The accrued interest for
21
Victorias Planters vs Victorias Milling Co., 97 Phils 318
22
Sec 4(aa) of Republic Act 11469
23
Sec. 4 (bb) of Republic Act 11469
24
Sec 4.01 and 4.02 of IRR of Sec. 4(aa) of RA 11469

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the 30-day grace period may be paid by the borrower on staggered basis over the
remaining life of the loan. Nonetheless, this shall not preclude the borrower from paying
the accrued interest in full on the new date following the application of the 30-day grace
period, as the case may be. (Section V, Implementing Rules and Regulation of Section
4(aa) of Republic Act 11469)
Due to Enhanced Community Quarantine, the movement of the people is
restricted and so is the operation of some businesses. Due to restriction, some business
may not be able to pay rental obligations and might incur interest because of the
inability to pay or defaulted payment. The Department of Trade and Industry
Memorandum Circular No. 12, Series of 2020 in line with Republic Act 11469 to
granting grace period to residential units and commercial rents of Micro, Small and
Medium Enterprises (MSMEs). The granting of grace period shall be granted to to
residential rents falling due within the period of ECQ, without incurring interest,
penalties, fees and other charges. Only the commercial rents payable by the MSMEs
that have temporarily ceased operations within the period of ECQ are granted the
minimum of 30-days grace period without incurring interest, penalties, fees and other
charges. (Section 3.1 and 3.2, DTI MC no. 20-12)
The refusal of granting of mandatory grace period and the waiver thereof is
punishable under Republic Act 11469. 25 This might be questionable as an impairment of
contract26 by the State. However, it is a basic knowledge that property rights will bow
down to the police power of the State.

25
Section 3.03 of IRR of RA 11469 in relation to Sec 6(g) of RA 11469
26
Section 10, Article III of the Constitution

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Conclusion:

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