Published — June 1, 2022
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Be aware of other legalities aside your contractual obligations: DOWNSIZING OF EMPLOYEES DUE TO COVID19
The COVID – 19 pandemic has done damage and is expected to do so until the world has finally discovered a cure for the disease.
Among the areas that the COVID -19 has impaired is the contractual obligations of businesses. Under article 1156 of the New Civil Code of the Philippines (NCC), an obligation is a juridical necessity to give, to do or not to do. Following this article of the New Civil Code are the questions, “Are there instances where the obligation may not be complied with?” If any obligation has not been complied with, is there any remedy under the law against the erring party? Is there an instance where the debtor may be excused from the performance of his obligation/s?
Let us deal with the above-stated queries. Yes, there are instances where the obligation may not be performed with. Among those instances provided under the law is the principle of fortuitous event or force majeure. The non-performance of the obligation, contractual obligations of business in this case, must be by reason of the fortuitous event or force majeure. Said fortuitous event or force majeure must be sole reason for the non-performance or impossibility of performance of the contractual obligation. Meaning, the non-performance or impossibility of performance of the contractual obligation must be due to force majeure such as government prohibitions or restrictions as a lawful response to COVID – 19, a fortuitous event, like those relating to the movement of its people, that only few are authorized to go out of their house. The nonperformance must not be by reason of the willful conduct of business. In other words, the business must not be in bad faith. Is the business liable for the non-performance of its contractual obligation? Under Article 1174 of the NCC, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. The case of Philippine Communications Satellite Corporation vs. Globe Telecom, Inc., G.R. No. 147324, May 25, 2004, provides that a fortuitous event under Article 1174 may either be an “act of God,” or natural occurrences such as floods or typhoons, or an “act of man,” such as riots, strikes or wars. COVID-19 being a natural occurrence is a fortuitous event. Thus, the business enterprise is not liable for the non-performance of its contractual obligation.
However, under Article 1306 of the NCC, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy. If there is a provision on the contract suspending the performance of the obligation until such time that the unforeseen event ceases, COVID-19 in this case, nothing in the law would impede the business in performing its obligations at a later time. All and whatever lawful terms and conditions stipulated by and favorable to both parties would be respected by the laws of the Philippines. If the contract has not provided for any provision relating to unexpected events, then maybe it’s time for the parties to review their contracts so that any contract thereafter may properly address similar issue or issues should they be exposed to the same risk.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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