Let’s face it, our lives are indelibly regulated by the numerous contracts that we enter into. And no, I’m not just talking about the document that we commonly know as a “contract”. But in view of the current pandemic and the containment measures that government has imposed and that we are all experiencing, we keep on hearing about rent payment holidays, deferred payments of obligations, and the like. Basically, what these all means is to allow people not to comply with their contractual obligations. Question is, could that be done?

To answer this question, there is a need to determine first whether the COVID-19 pandemic can be considered to be a valid cause to allow non-compliance with contractual obligations. Pandemics, like the COVID-19, can be considered as an act of god or a fortuitous event. Article 1174 of our Civil Code defines a fortuitous event as “an occurrence or happening which could not be foreseen, or even if foreseen, is inevitable.” To apply this definition to the COVID-19 pandemic, there is no doubt that the pandemic is something that could not have been foreseen. Even if we submit that it was foreseen, the spreading of the disease could not have been avoided.

Now that we’ve established that a COVID-19 pandemic is a fortuitous event, what is its effect on contractual obligations? Article 1266 of the Civil Code provides that the debtor “shall be released when the prestation becomes legally or physically impossible without the fault of the obligor.” Simply put, when doing the obligation, through no fault of the obligor, has become impossible legally or physically, the one who is required to do the obligation is excused if s/he fails to comply with it. That said, should the obligation become legally or physically impossible due to the COVID-19 pandemic and/or because of the government-imposed containment measures, then the debtor is excused from doing the same. In like manner, Article 1262 provides that when one is obligated to deliver a determinate thing, then such obligation “shall be extinguished if (the thing) should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.” However, if the obligation is to deliver a generic thing, Article 1263 provides that “the loss or destruction of anything of the same kind does not extinguish the obligation.”

However, to be able to invoke force majeure as an excuse for non-compliance of an obligation, the Supreme Court in a long string of cases consistently held that the following requisites must be met:

1. the cause of the breach of the obligation must be independent of the will of the debtor;
2. the event must be either unforeseeable or unavoidable;
3. the event must be 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.

The absence of any one of the above requisites would have the effect of not excusing the party from non-compliance with an obligation.

Why are these concepts important to know? They are important to know because they determine whether you can be made liable for non-compliance with a contract you are party to. Let us take for example the case of Shoppers Gain Supermarket vs. NLRC (G.R. No. 110731, 26 July 2006). In this case, various employees of Shoppers Gain Supermarket were laid off after it was forced to close down due to the non-renewal of the lease over the premises where it was operating. The Supreme Court held that “(t)he non-renewal of petitioner corporation's lease contract and its consequent closure and cessation of operations may be considered an event beyond the control of petitioners, in the nature of a force majeure situation.” To apply the above requisites, here the non-renewal of the lease is clearly independent of the will of Shoppers Gain. As a business, it is in its best interests to continue with the lease and thus continue with its business. Second, the non-renewal is unavoidable because Shoppers Gain, as the lessee,  can never force the lessor to continue with the lease when the lessor does not want to. Third, the non-renewal of the lease has rendered the continuous operations of the supermarket impossible considering that Shoppers Gain had no premises anymore on which to operate. Finally, in this case, Shoppers Gain failed in its obligation to provide proper notice to its employees regarding the termination of their employment contracts as mandated by the Labor Code. Thus, while it was justified in terminating its employees, their failure to abide by the notice requirements under the Labor Code rendered the dismissal of their employees illegal. As a consequence, the aggrieved employees received monetary awards.

Now, can the COVID-19 pandemic and the government containment measures imposed be considered as force majeure and excuse parties to contracts from complying with their obligations? That really would depend on the peculiar and particular circumstances of each case. But one has to remember the requirements, if the case satisfies all of them, then the law would be on your side; otherwise, there would be consequences.