COVID-19 and Force Majeure

• There has been a rash of force majeure claims recently
• Laws allow contracting parties to agree on what are “fortuitous events”
• Force majeure under COVID-19 may be considered on a case-to-case basis

The onslaught of COVID-19 triggered measures designed to contain and mitigate its impact and rapid spread.

This development also focused the spotlight on the issue: Can COVID-19 be considered a force majeure or fortuitous event to justify delays and even non-performance of contractual obligations?

Example:

Media reported that the Manila Electric Company (“Meralco”), the largest private electric distribution utility company in the Philippines, has invoked the force majeure provision in its Power Supply Agreements (“PSA”) due to the significant reduction of overall power demand in the country during the Enhanced Community Quarantine (“ECQ”) period.

The Philippine Independent Power Producers Association, Inc. (“PIPPA”), however, does not support Meralco’s action. According to PIPPA, allowing the force majeure claim to prosper will redound to a contractual breach and may, in turn, impede the power generation companies’ capacity to honor their financial obligations.

PIPPA’s Executive Director asserted that “force majeure claims cut both ways, and this will have disastrous consequences if it remains unchecked.”

What says the law?

First, let us revisit some definitions.

Force majeure is a French term which, when translated into English, means “superior force.” In Philippine law, it is used interchangeably with the term “fortuitous event.”

However, there is a technical difference.

“Fortuitous event” defined in Article 1174 of the Civil Code as “those events which could not be foreseen, or which, though foreseen, were inevitable.”

Force majeure is not defined anywhere in the Code. Renowned author Hector de Leon defines it as “those events which are totally independent of the will of every human being.” Examples of these are earthquakes, floods, volcanic eruptions, etc.

Force majeure is also known as an “act of god.” Whatever may be the term used, the effect is the same insofar as they exempt an obligor from liability.

How may either be invoked?

SAID THE LAW:

There are four requisites before a debtor may be exempted from liability due to a fortuitous event:

• The cause of the unforeseen and unexpected occurrence must be independent of the human will;
• It must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid;
• The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and
• The debtor (obligor) must be free from any participation in the aggravation of the injury resulting to the creditor (obligee).

For the occurrence to be considered independent of human will, it is important that there must be no concurrent or previous negligence or imprudence on the part of the obligor by which the loss or injury may have been occasioned.

The Supreme Court further clarified:

“When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God.”

The High Court has also consistently held that in order for a party to claim exemption from liability by reason of fortuitous event, said event should be the sole and proximate cause or destruction of the object of the contract. A party cannot invoke fortuitous event to excuse compliance when the law expressly states otherwise; is otherwise declared by stipulation; or when the nature of the obligations requires the assumption of risk; or  when a party is guilty of delay or default in the performance of the obligation.

Article 1159 of the Civil Code  provides that “obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.” 

This means courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto.

Yes, parties are free to stipulate in their contracts and expand or restrict the circumstances which may constitute force majeure. This is what is commonly known as a “force majeure clause.” It is thus important for every person entering into a contract to thoroughly scrutinize its provisions and check the exact scope of what constitutes force majeure in that particular contract.

Back to the key question:

May the COVID-19 pandemic be considered force majeure in the context of contractual law?

A categorical answer to this question is difficult.

The COVID-19 pandemic remains to be a unique phenomenon with limited credible studies at the moment. Therefore, invoking force majeure in the context of the COVID-19 pandemic necessarily depends on the factual circumstances of the case such as, but not limited to, the nature of the obligation and subject matter of the contract. In other words, every force majeure claim based on the COVID-19 pandemic must be pitted against the particular facts and circumstances surrounding a specific case, the provisions of the law, and jurisprudence on this matter.

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