CONTRACTS, FORCE MAJEURE, AND THE COVID-19 VIRUS

by Atty. Oliver S. Yuan

The entire world was shocked by the sudden onslaught of the Covid-19 Virus. The governments in
all parts of the globe have implemented immediate measures to protect its citizens from this invisible
antagonist, Covid-19. In the Philippines, Pres. Rodrigo R. Duterte implemented a strict Enhanced
Community Quarantine (ECQ) in different parts of the country having a high percentage of cases of
Covid-19. The ECQ was implemented in order to prevent the spread of the virus. While our front
liners are doing a heroic act of saving the lives of all those who are infected, another casualty needs
serious help, and that is our economy. The implementation of the ECQ has resulted in a paralysis of
business operations. A great majority of the businesses, if not all, were severely affected. The ECQ
resulted in limited manpower, disruption of supply chains, potential chain reactions of collectability
issues, inability to meet the demands of the customers, missed deadlines, non-delivery of service
and goods, both finished goods and raw materials, and restrictions on commercial operations, and
for some businesses, like the small and medium enterprises, there has been even a stoppage of
operations. The concern of businesses now is to lessen the impact and if possible avoid liability for
breach of contract. This concern of the businesses is also a concern for individuals who have
obligations and contracts to fulfill.
CONTRACTUAL OBLIGATIONS AND FORCE MAJEURE
The questions, many ask these days are the following:
1. Is the Covid-19 pandemic considered a force majeure?
2. Can force majeure be used as a legal remedy in order to avoid liability in the failure to perform
contractual obligations?
To answer the questions, let us first define force majeure. Force majeure is also termed as fortuitous
event and in accordance with Article 1174 of the Civil Code of the Philippines, it is an occurrence or
happening which could not be foreseen, or even if foreseen, is inevitable. Force majeure generally
includes acts of God, such as floods, typhoons, and other natural catastrophes, as well as acts of
man beyond the control of the contracting parties such as war, riots, and laws, orders, and
regulations imposed by the government.
As a general rule, there is NO liability in case of failure to perform an obligation due to a fortuitous
event or force majeure. However, there are requisites to exempt an obligor from liability by reason of
a fortuitous event or force majeure, and they are the following:
1. The cause of the breach must be independent of the debtor’s will;
2. The event must either be unforeseeable or unavoidable;
3. The event must such as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and,
4. The debtor must be free from any participation in, or aggravation of, the injury to the creditor.
It is incumbent upon the party charged with the obligation to prove force majeure. Therefore, based
on the definition given under Article 1174 of the Civil Code, the Covid-19 pandemic can be
considered as force majeure or fortuitous event. However, before any person or entity may invoke
Covid-19 as a force majeure to exempt such person or entity from contractual liability, the four (4)
requisites mentioned must be complied with.
Force majeure provision is commonly stipulated in contracts. Despite this common practice, it is
suggested that the exact wordings of force majeure provision be reviewed from time to time because
not all force majeure provisions are worded the same. As mentioned, the Covid-19 pandemic can be
considered as force majeure, as a general rule. However, there are exceptions that can make an
obligor liable despite the occurrence of fortuitous event or force majeure.
The late Dean Ernesto L. Pineda wrote the following exceptions in his book, to wit:
1. When it is expressly stipulated that he shall be liable even if the non-performance of the obligation
is due to fortuitous event. (Art. 1174)
2. When the nature of the obligation requires the assumption of risk. (Art. 1174)
3. When the obligor is in delay. (Art. 1165)
4. When the obligor has promised the same thing to two or more persons who do not have the same
interest. (Art.1165)
5. When the possessor is in bad faith and the thing is lost or deteriorated due to fortuitous event.
(Art. 552)
6. When the obligor contributed to the loss of the thing. (Tan Chiong Sian vs. Inchausti & Co., 22 Phil
152
7. When the obligor is guilty of fraud, negligence, or delay or if he contravened the tenor of the
obligation. (Juan F. Nakpil vs. United Construction Co., Inc. vs. CA, 144 SCRA 596; 160 SCRA 334)
The contracting parties may stipulate that a party shall still be held liable even if the party’s failure to
perform his obligation is by reason of fortuitous event or force majeure. When the obligor has
already failed to deliver, either goods or services, before the force majeure occurred, it will not be an
excuse. This is the reason why the force majeure provision of a contract or any part of the contract
must be reviewed from time to time and make sure that there is no agreement between the parties
that would prevent them from invoking force majeure or fortuitous event in exempting such party
from liability.
It must be noted that the legal concept of fortuitous event or force majeure and its application, is no
longer necessary for some contracts such as contract of lease and contract of loan. Republic Act No.
11469, also known as the “Bayanihan to Heal as One Act,” directs all financial institutions, both
public and private, to implement a minimum of a 30-day grace period for the payment of all loans
falling due within the period of the ECQ without incurring interests, penalties, fees, or other charges.
The said law also provides for a minimum of a 30-day grace period, without incurring interests,
penalties, fees, and other charges, on residential rents falling due within the period of the ECQ.
In conclusion, invoking Covid-19 pandemic as a force majeure or fortuitous event that may exempt a
person or entity or a contracting party from liability would depend entirely on the wordings stated in
the force majeure provision of the contract or in the wordings of the entire contract. It could either fall
on the general rule or on the exceptions, as defined and provided for by law.