What happens when COVID-19 prevents us from complying with our contractual obligations? In these uncertain times, the concept of force majeure offers a lifeboat for businesses that are prevented from complying with their contractual obligations, due to the COVID-19 Pandemic.
What is Force Majeure?
Force majeure events are “extraordinary events not foreseeable or avoidable” and “events that could not be foreseen, or which though foreseen, are inevitable” Examples of force majeure are acts of God like floods or typhoons or acts of man like wars or revolutions.
What is the effect of Force Majeure on contracts?
A force majeure event exempts a person from liability for delay or non-performance of an obligation, provided that 1) the event is unforeseeable or unavoidable; 2) the failure to comply with the obligation is independent of human will; 3) the event renders the person impossible to comply with his obligation in a normal manner; and 4) the person invoking force majeure is not negligent and does not perform acts which contribute to the injury resulting to a counterparty.
Whether the COVID-19 pandemic is a force majeure event that exempts a person from his contractual obligations must be decided on a case to case basis. The force majeure provisions are standard in most contracts but not all will explicitly cover a pandemic but may cover “Acts of God” or “actions by government” which can cause the non-performance of the contract. Thus, business owners should check if their respective contracts have a force majeure clause and have it assessed by legal counsel to determine its ability to relieve a party of an obligation due to COVID-19 pandemic.
Business owners must also start exploring
steps to mitigate any loss or damage caused by the delay or nonperformance of
contractual obligations due to the COVID-19 pandemic. This includes advising
their respective counterparties if they will not be able to comply with their
contractual obligations during the pandemic. Moving forward, business owners
must assess the consequences of invoking force majeure, as well as other
legal and practical remedies to continue the business, despite the COVID-19
National Power Corporation and Chavez vs. Court of Appeals, G.R. No. 96410, 03 July 1992.
 Philippine Communications Satellite Corporation v. Globe Telecom, Inc., G.R. No. 147324, 25 March 2004.
Article 1174, Civil Code; Spouses Yobido vs. Court of Appeals; G.R. No. 113003, 17 October 1997