Obligations during Fortuitous Events: Suspended, Cancelled or Still Demandable?

Christian Andrew Labitoria Gallardo[1]

On 79 AD, Mount Vesuvius violently erupted releasing a "firestorm" of poisonous vapors and molten debris which filled the streets until nothing remained to be seen of the once thriving communities. One of the cities that remained buried for almost 1700 years is the city of Pompeii. Prior to the tragic eruption however, Pompeii was a thriving center of trade and commerce. With its favourable mild climate and highly fertile volcanic soil susceptible of agriculture, as well as its proximity to the Sarno river valley, most of the products in Greek river towns came from the rich city of Pompeii. One can only imagine the aftermath of the eruption, and the consequent burning of trading ships and the burying of Pompeii, to the Greek traders back then.

In the modern context, with the rapid and unexpected spread of the Corona virus across the globe, many unwary businessmen have sought reconsideration of their debts and obligations. While some creditors have been compassionate, some remain adamant, especially that they, too, have been affected by the pandemic. Can obligations be suspended, or even cancelled, due to the fact that this catastrophe is unexpected?

First things first, is the Corona Virus a fortuitous event?

Rumors has it that the Corona Virus is man-made pathogen that unexpectedly leaked from a secret laboratory in China. If this was the case, can it still be considered a calamity that can justify the suspension or cancellation of obligations? What is a fortuitous event to begin with?

A fortuitous even is one that is unexpected or, even if expected, is unavoidable.[2] Contrary to common belief, it covers not only acts of God but also those which are man-made such as wars, riots and the like provided that it is outside the control of the parties. Given that definition, the unexpected spread of the Coronavirus is definitely a fortuitous event.

The law provides that no one shall be responsible for fortuitous events. To be exempted however, there must be an entire exclusion of any human factors on one of the parties.[3] This however does not mean cancellation or suspension of obligations in ALL cases. One must make a distinction first between obligations to give and obligations to do.

On obligations to give

The enforceability of obligations to give despite the happening of a fortuitous event depends on whether what is to be given is already identified or not. When I say identified, this does not only mean that it is specified as to its class, but it must be pinpointed or singled out from all others. Say, in some stroke of luck, I happen to meet a seller of a limited edition Poljot Sturmanskie 2416 Gagarin watch (of which only 2,000 pieces were manufactured), and I contracted to buy one, his obligation is only to give a generic thing- which is one of the 2000 pieces of the much-coveted Poljot Sturmanskie 2416 Gagarin watch. But say, I specified that I want the one he is wearing on his wrist at the moment, even if his initials were already engraved at the back, his obligation to give would therefore be specific- that is, to give that watch and that watch alone and not some other Poljot Sturmanskie 2416 Gagarin watch.

Photo from: poljot24.de

Now why is this important? Because loss of generic and specific thing due to fortuitous event have different implications. The law adheres to the principle that “genus never perishes”. This means that the loss of a generic thing shall not exempt a party for complying with the obligation.[4] Given the example, if only the delivery of a Poljot Sturmanskie 2416 Gagarin watch has been agreed upon and such was destroyed as it was soaked in flood water, the law recognizes that, while unfortunate, there are 1999 more pieces that a party can procure to comply with the contract. Hence, he is not exempt thereof. However, if what is to be delivered has been specified to the exclusion of others, such as the Poljot Sturmanskie 2416 Gagarin watch with the initials of the seller, its loss shall exempt the seller from complying with the obligations provided that the loss was purely due to an unexpected or unavoidable event and not to his fault to some extent. To summarize, if what is to be given is specific and it is lost due to a fortuitous event, the party shall be exempted from complying with the obligation. If it is generic, then the fortuitous event shall not affect the obligation.

On obligations to do

The enforceability of an obligation to do is generally cancelled if prevented by a fortuitous event. This is so because the party could not be faulted for its inability to do something due to the happening of a calamity.

For example. Say I am I local magician based in Quezon City and I was hired to perform a magic trick for a birthday party in Cebu City. Given the distance and cost, one could presume I could perform more than just parlor tricks. Yep, forget about the classic David Blaine trick of bringing back to “life” birds and insects because we all know that they were thawed. Let us say I can perform the “Shadows” trick of Penn and Teller where I can cut forms out of a shadow which then creates an effect on the object itself. However due to the community quarantine lockdown, I was prevented to go to Cebu City at the day of the birthday party. Would I be held liable? Definitely not. After all, I did not claim that I could do the “portal” trick of David Copperfield which would allow me to teleport to Cebu without the IATF knowing.

Photo from: wimp.com

What would happen in case of cancellation of obligations?

While indeed obligations to give a specific thing and obligations to do are cancelled due to the happening of a fortuitous event such as the Corona Virus, justice and fair play however demands that what has been received must be restored to the other party.[5] Since the obligation is cancelled and without any effect, what has been given by the other party in advance must be given back to him. In the examples above, if I have already paid half the price of the specific Poljot Sturmanskie 2416 Gagarin watch, the same must be restored to me given that ownership has not passed. Similarly, if advance payment was given to me to be used for my transportation expense to Cebu City in relation to the “shadow” trick that I was not able to perform, it is but fair that I restore it to the already-disappointed birthday celebrant since I was not able to use it for the intended purpose.

What has been discussed however is only the general rule. There are certain exceptions to the general rule in which the obligation is not extinguished despite the happening of the fortuitous event. Continue to stay tuned for these exceptions as this article is far from being extinguished. Meanwhile, please do join our free Facebook Group Business Labor Forum for free legal updates.

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Cover photo from: livescience.com

[1] Christian Andrew Labitoria Gallardo is a recent graduate of the Ateneo School of Law with a Juris Doctor degree, and is currently an associate of the Sangalan and Gaerlan, Business Lawyers, a law firm specializing in labor, corporate and business law. You may reach him through a phone call or message (09157042132) or via email (andrew.gallardo@paladinslaw.org). [2] Art 1174, New Civil Code of the Philippines. [3] Real v Belo, G.R. No. 146224 (2007). [4] Art 1174, New Civil Code. [5] Article 19, Civil Code.