In light of social distancing measures necessary to combat the outbreak of corona virus disease 2019 (COVID-19) and the declaration of enhanced community quarantine in Luzon, businesses adjust to operate on a work-from-home basis, on a skeleton workforce and under a limited capacity. Large gatherings such as weddings, birthday celebrations and corporate events are cancelled. These, in turn, entail cancellations of venue reservations, suppliers’ service contracts, and various other contractual commitments.
These are just among the many contractual undertakings affected by the crisis. Hence, this article seeks to clarify the concept of force majeure and under what circumstances a fortuitous event may serve to exempt an obligor from liability.
Article 1174 of the Civil Code provides that no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. A fortuitous event under Article 1174 may either be an “act of God,” or natural occurrences such as floods or typhoons, storms, earthquakes or other cataclysmic events; or an “act of man,” such as riots, strikes, wars, governmental prohibitions, robbery, etc.
The rule excepts cases specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, such as in a contract of insurance. Further, under Article 1262 of the Civil Code, an obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk.
In general, to exempt the obligor from liability for a breach of an obligation by reason of a fortuitous event, the following requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor (Huibonhoa vs Court of Appeals, G.R. 95897 and 102604, 14 December 1999, 320 SCRA 625, 651-652).
The Supreme Court (SC) has consistently ruled that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code, the event should be the sole and proximate cause of the loss or destruction of the object of the contract.
To illustrate, in Tanguilig vs Court of Appeals (G.R. 117190. 2 January 1997), the SC ruled that a “strong wind” causing the collapse of a windmill cannot be considered fortuitous. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn. A “strong wind” that damages a windmill is neither unforeseen nor unavoidable, hence the same is not a fortuitous event that excepts a party from his obligation. In that case, the contractor who constructed and installed the windmill was directed to repair the same.
In Mondragon Leisure and Resorts Corporation vs Court of Appeals (G.R. 154188, 15 June 2005), the SC ruled that the Asian financial crisis of 1997 is not among the fortuitous events contemplated under Article 1174 of the Civil Code that exempts a debtor from complying his obligations. It must be noted that risk is an exception to the general rule on fortuitous events. Every business venture involves risks. Risks are not unforeseeable; they are inherent in business.
The event must not only be unforeseeable or unavoidable, but it must also render it impossible for the debtor to fulfill his obligation in a normal manner in order for the event to qualify as force majeure.
To be continued