What started as a coronavirus outbreak in Wuhan, China, that the Chinese authorities tried to cover up has become a pandemic that has brought misery to millions of people in many countries, including the Philippines.In response to the crisis, President Duterte has ordered a lockdown in Luzon, an action that has disrupted (and continues to do so) business and economic activities in the region that contributes 70 percent of the gross national product.
With the restrictions imposed on people’s movements, the ability of parties in business contracts or related transactions to live up to their commitments have become difficult, if not impaired.
The question in the mind of the affected parties is: Is the outbreak of COVID-19, or the disease caused by the new coronavirus, a fortuitous event that justifies noncompliance with or delay in the performance of contractual obligations?
A fortuitous event is an event that happens by chance or cannot be predicted, and even if predictable, is inevitable. Depending on the context it is used, that event is described either as an Act of God (a description opposed by people who believe God will not do anything harmful to man), such as an earthquake or typhoon; or force majeure, an event caused by the actions of man, such as war or riots.
Under normal circumstances, a fortuitous event may justify a contracting party’s failure or inability to comply with an agreement if the event was clearly unavoidable, and its occurrence has made impossible the fulfillment of contractual obligations in a regular manner.
The idea is, equity demands that the contracting parties should be released from their obligations if their inability to do so arises from causes beyond their control or could not have reasonably foreseen when they negotiated the contract.
But “caso fortuito” cannot be invoked to excuse compliance in the following cases: (a) the law says a party shall remain liable despite its occurrence as, for example, he or she has committed fraud, negligence or violated the terms of the agreement; (b) it is expressly stated in the contract; (c) the nature of the obligation requires the assumption of risks, e.g., provisioning of security services; and (d) a party is guilty of delay or default in the performance of his or her obligations. Considering the significant impact of “fortuitous event” provisions in contracts, especially if they involve substantial amounts of money, it is good practice to state in detail or enumerate what events are covered and their duration, and the facts or documents that should be presented to the party against whom the application is being invoked.
Based on reports, the COVID-19 pandemic may be considered a man-made fortuitous event that arose from some Chinese nationals’ gastronomic appetite for exotic wild animals that carried the virus.
Although China can be faulted for ignoring early warnings about the virus, its quick spread to different parts of the world came as a big surprise.
The advances in modern medicine created a false sense of security that a quick cure can be found. Sadly, COVID-19 turned out to be unique that, up to now, has medical experts scrambling for an effective antidote.
Clearly, the circumstances behind the pandemic come within the definition of a fortuitous event under our laws.
However, meeting the criteria alone does not mean it can be quickly invoked to justify a demand for changes or adjustments in contractual obligations.
The party seeking such relief has to prove that his or her inability to live up to the agreement is either directly attributable to it, i.e., contracting the illness; or indirectly, because of the restrictions imposed by the government on the movement of people.
After meeting this criterion, the next step is to show that the contract or invoking party does not come under any of the exceptions earlier mentioned on the nonapplication of the fortuitous event provision.
Thereafter, keep your fingers crossed (including your toes, if possible) that your counterparty would be reasonable and fair in his or her appreciation of that provision. INQ