While much has been written, we may still not fully grasp the lethal consequences of COVID-19 on the global economy. And so, amid the anxiety about the future, we observe that some countries have begun to transition through the so-called “phase one of de-escalation”: the slow and gradual return to the new normal.
On the list of concerns for many, accounts payable are at the top, and for good reason. Is there any legal basis for a solution, a jurídico institute of exemption?
It seems unquestionable that the COVID-19 epidemic—and specifically the government orders issued on the occasion of the health emergency—meets the requirements of unforeseeability, irresistibility, and lack of fault characteristic of force majeure. Yes, the pandemic fits the suit of a supposed liberator of responsibility well.
By virtue of this, the debtor may argue that while the pandemic lasts (due to having contracted the virus or due to the confinement order), it is not possible for them to make the due payment. If they can prove such extremes and the impossibility—a not-so-easy task—they will be exempt: they will not be responsible for the delay or the default interest.
What is not clear is whether, by appealing to force majeure, the debtor can see the obligation to pay extinguished. Jurisprudence unanimously affirms that when the performance consists of the payment of money, the due obligation does not disappear on the occasion of the incident. The debtor must satisfy it when the event ceases.
This is because pecuniary debts have a special legal physiognomy—which distinguishes them from the rest of the generic obligations—with a series of characteristics, among which the “perpetuatio obligationis” stands out. A consequence of this is that the impossibility of fulfillment is denied, and at most, temporary non-fulfillment or delay is admitted.
But the reflection cannot end there. As the pandemic is an unprecedented event, is a deeper legal examination not in order, to also consider the impact of COVID-19 on the global economy, the innumerable non-payments resulting from the economic paralysis, the negative effects on the debtor’s cash flow and that of their debtors, etc.? Won’t all this be sufficient force majeure to exempt from payment?
I think not. If the argument for the extinction of the obligation due to force majeure were to be accepted by virtue of the global impact of the virus and the damage to the debtor’s cash flow from the widespread non-payment of third parties, then the release of taxpayers’ tax debts due to force majeure would have to be considered equally admissible if their respective debtors did not fulfill their payments; or that the obligation of employers to pay their employees would also be extinguished if the employer’s debtors did not honor their debts.
Force majeure has its rules and its limits, and they must be adhered to: for debts of money payment, the supervening impossibility of the obligation due to force majeure cannot operate as an exoneration of the obligation. To pretend otherwise is contrary to law, would undermine legal certainty, and would further scare away investment.
In any case, there is no doubt that the impact on contracts will be colossal. In addition to any relief measures that can be implemented, in the private sphere, the parties will have to resort to good faith, and creditors must navigate within the realm of reasonableness as far as possible.