Is Force Majeure Applicable In The Current Situation?

Is Force Majeure Applicable In The Current Situation? Corrales & Associates Blog

We have had many inquiries from clients and friends related to the problems they are having to face their payment obligations given their income has been reduced substantially if not at all.

They want to know if there is any defense with those creditors that are not being reasonable vis a vie the current situation. Our response has been that if debtors comply with the legal requirements, they can invoke force majeure as a way to suspend the payment obligations. Force Majeure (FM)is a legal concept that can be defined by its accepted requirement as: one or more events not caused by the debtor and beyond the debtor’s control, that is either unforeseen or if foreseen impossible to defeat and which supersede the individual’s intention to fulfill his/her obligations. Depending on the terms of each legal relationship there could be some additional requirements to fit into the legal concept.

Some contracts may require some type of notification to the debtor, for example. Also, it is important to note that it is not enough that the event exists, but that it actually makes it impossible for the debtor to comply with its obligations.

The effect of FM in the current context is the suspension of the obligations as long as all the requirements for their conformation are met. In other words, debt payment obligations are suspended while the FM situation lasts. Once the situation is overcome, the pending obligations must be fulfilled. There should be an agreement between the creditor and debtor as to how to pay the pending obligations.

In order to know if we can invoke the FM, we must first go to the contract with our creditor and see if there is a regulation between the parties on the FM. If the contract regulates the FM and allows them to be invoked as a measure to suspend the obligations, special care must be taken with regard to the form of notification that must be made to receive the benefit. If the notification normally required by this type of clause is not made in the manner indicated in the contract, you will not be able to benefit from it.

Many contracts have FM regulated negatively for the debtor. Generally, as in the case of loan contracts with banks, they indicate that the debtor assumes the risk of FM. Therefore, when this is the case, debtors cannot invoke FM to suspend the fulfillment of their obligations and must comply with all the obligations contained therein.

Still, our advice is always to talk to the creditor and explain the situation and the inability to meet the obligations. The creditor will have the option of accepting or not the temporary suspension of the obligations. If any type of suspension is accepted, we recommend leaving such agreements in writing for the protection of both parties.

If the contract does not contain any regulation on FM, then it will be regulated by the general law, the Civil Code and the Commercial Code for commercial contracts, in the case of suspension of payments.

  • The CF/FM can also extinguish the obligations in cases for example when the object of the obligation is destroyed. Cabanellas gives the example of an obligation to deliver a bull, but he dies before the delivery date.
  • Article 3332 C.
  • With the exception of the cases indicated in Art. 2916 C for lease contracts.