Approach to the concept and its incidence in successive tract contracts. Difference with “force majeure”.
Since the state of alarm (RD 463/2020, of March 14) was decreed in our country as a consequence of the pandemic known as COVID19, we have been consulted about the consequences that this circumstance may cause in the fulfillment of contracts. Most of the questions are about whether contracts can be suspended, breached, modified or terminated due to the sudden appearance of this crisis that we are now experiencing.
The circumstances that may arise in the execution of the contracts may be many and very different, and they may change during the life of the contract.
In this sense, the circumstances that were agreed upon at the beginning of the contract can be modified without fraud and the unilateral will of the parties involved in the breach and without any fault on the part of one of the contracting parties.
There are two legal figures that must be analyzed, in the case at hand, to answer the questions that are being raised: force majeure or fortuitous event, and the so-called rebus sic stantibusor supervening alteration of the circumstances of the contract. The purpose of this article is to study the application of the second one, however, we believe it is convenient to delimit these two concepts.
Before the fulfillment of the obligation, several attitudes can be observed: perform the service or not perform it. The non-performance of the obligation may be due to defective compliance or total or absolute breach of the same, and that breach, as established in art. 1,101 of the Civil Code, is carried out through fraud, negligence or delay, acts that give rise to the responsibility of the person who acts in this way.
But that responsibility does not operate in the cases provided for in art. 1.105 of the Civil Code which establishes that “Outside of the cases expressly mentioned in the law, and those in which the obligation so declares, no one will be liable for those events that could not have been foreseen, or that, foreseen, were unavoidable”.These cases are called “fortuitous or force majeure”,terms that the legislator has decided to change to “unpredictable and unavoidable events”.The unforeseeable and unavoidable events exonerate or release the debtor from liability for breach of obligation (in the case of default accipiens, also the creditor).
On the contrary, the supervening alteration of the circumstances or clause rerebus sic stantibushas as its purpose the modification of the contract aimed at compensating the imbalance of benefits caused by said supervening alteration, having traditionally been denied by jurisprudence rescissory, resolutive or extinct effects of the contract, except when the balance of benefits is not possible in any other way.
Both figures suppose the exceptions admitted in our law regarding the principle of “pacta sunt servanda”contemplated in the articles 1,091 and 1,258 of the Civil Code, although currently the rebus sic stantibus clause is understood as an integrating element of said principle due to the demands of economic public order, changes in legal traffic and the principle of good faith.
Thus, regarding the application of force majeure as a cause for the impossibility of fulfilling an obligation, when it comes to pecuniary debts, which are a generic obligation, the principle applies to them. “perpetuatio obligationis”in the risk system, therefore the impossibility of compliance cannot be applied to them, ergo force majeure will not act as a cause of extinction of the obligation (see STS sec. 1, nº 266/2015 , rec. 721/2013, of May 19, 2015).
Therefore, when we are faced with a monetary obligation, there is no supervening impossibility that extinguishes the obligation, since money (kind) does not perish (genus nunc quam perire consetur). In any case, we would be facing an insolvency of the debtor and force majeure would not be applicable.
As we said, most of the questions, in the case at hand, are aimed at clarifying whether or not the current circumstances allow the debtor to terminate his payment obligation with respect to the creditor or, alternatively, a modification or suspension. of said obligation in successive tract contracts.
As we have seen, there is no extinction of the pecuniary obligation. The impossibility of fulfilling the obligation finds its field of action in the obligations to give a certain thing (article 1,182 of the Civil Code) and in the obligations to do (art. 1,184 of the CC). But this would be the subject of another study.
However, we could be facing a modification or “suspension” of the pecuniary obligations, applying the “rebus sic stantibus” clause because what it is about is preserving the acts and businesses legal references to which, among others, art. 1,284 of the Civil Code (see, among others, the STS of October 15, 2014).
The coronavirus crisis may have caused non-compliance with the execution of multiple contracts, for example, transport, hotel reservations, non-compliance with a lease due to unemployment caused by employment regulation files in companies, or any type of non-compliance that have not been caused by personal situation, or by fault of one or all of the contracting parties.
In the judgment of the Supreme (Civil) Court, sec. 1st, S 04-30-2015, nº 227/2015, rec. 929/2013, it was pointed out that when applying the “rebus sic stantibus” clause, it is necessary to attend to the criteria that must be taken into account for its application due to change of circumstances, which is what was called the “inherent normal risk”. or derived from the contract”, that is:
“The risks assigned to the fulfillment of the contract either by its express provision, or by its link with the risks that derive from the nature and sense of the obligatory relationship contemplated in the contract”.
It is clear that the existence of a pandemic, such as the coronavirus, cannot be associated with an inherent risk in contracts due to its unpredictable nature and its exceptional manifestation.
The Supreme Court rules out the application of the “rebus sic stantibus” clause to review or terminate the contract when there is a legal or contractual provision of possible risks.
The judgment of the Supreme (Civil) Court, sec. 1st, S 06-30-2014, nº 333/2014, rec. 2250/2012 reveals circumstances that would warrant applying the rebus sic stantibus clause to a pandemic situation like the one we are experiencing:
- The application of the “rebus sic stantibus” clause does not imply a break or singularity with respect to the preferential rule of loyalty to the given word (pacta sunt servanda), nor of the stability or maintenance of contracts.
- In cases like the current one (declared pandemic) it does not mean that the application of this clause means breaking the “pacta sunt servanda”, because whoever is affected by the pandemic, in its relationship with what was agreed, wanted to comply with it, but the unpredictability and alienation of this particular situation prevents it from doing so or, at least, in the way it was agreed.
- When outside of what was agreed, unexpectedly and without fault of the parties, the circumstances that gave meaning to the basis or purpose of the contract change, the claims of the parties may be subject to adaptation or revision, which according to the principle of good faithis to be expected in this context (see STS May 21, 2009, no. 1178/2004).
All of this, taken to the different cases that clients present to us, could translate into a “suspension” or modification of the contractual conditions that would vary according to the assumptions.
Let’s see some examples:
- Habitual residence lease:
Most of the queries are aimed at this type of contract, in which the tenant has lost his job or has been subjected to an ERE or ERTE, unable to pay all or part of the agreed rent or, on the other hand, the landlord ceases to receive rent from the property owned and occupied by the tenants.
In these cases, the “rebus sic stantibus” clause would be applicable and not force majeure because, as we said, it is a pecuniary obligation.
The application of this clause to the lease should lead to a reduction in rent, but not to an exemption from the payment of this via suspension of the lease. In principle, it does not make sense to burden only one of the contracting parties with the risks of an extraordinary situation. Both parties should equally assume the heavy burden that the coronavirus is causing, being aware that, if the situation is prosecuted, this is the solution you have more likely to be imposed in the Courts. It is worth mentioning that the application of the rebus sic stantibus clause in lease contracts is not unilateral and requires, in case of disagreement between the parties, a judicial pronouncement.
- Business premises lease
In this type of lease the same principles would be applicable as in the habitual residence.
Indeed, the obligation of the lessee of a business premises intended for a business that is prohibited from opening due to the coronavirus crisis has as an essential obligation towards the lessor the payment of the agreed rent. It is a monetary obligation that is not impossible to fulfill and, therefore, we will not be faced with a fortuitous event or force majeure.
However, the circumstance arises that in these contracts the lessor is complying with his obligation to respect the possession, use and enjoyment of the lessee of the premises, so it does not seem reasonable to transfer to the lessor all the consequences of the impossibility of opening or impose a suspension of the contract. Indeed, it seems clear that a lease in which the lessee continues to hold possession, use and enjoyment of the premises cannot be suspended. Keep in mind that what the authorities have prohibited is not the possession and occupation of the premises but its opening to the public.
Therefore, once again, we will find ourselves before the clause rebus sic stantibus and it will be necessary to assess whether the impossibility of opening the premises to the public during a certain period of time represents an incident of such magnitude that it alters the bases of the business in such a way that it frustrates or makes the primary economic purpose of the contract unattainable and, in addition, breaks the commutativity of the contract, that is, there is a significant imbalance between the benefits and, furthermore, it is not a circumstance (the non-possibility of opening to the public) that is a normal risk of this type of contract or is contemplated in the contract.
Each specific case must be assessed to determine whether or not the rebus sic stantibus clause would apply.
The determining factors will be, among others, the duration of the ban on opening, whether or not the lessee has seen his income diminished due to this lack of opening and its magnitude, the possibilities of income recovery by the lessee once the prohibition ceases. opening, or even the lessor’s own circumstances.
- Loan contracts, mortgage loan or credit
In principle, the repayment of a loan through periodic installments is a monetary payment obligation to which the impossibility of fulfilling the obligation does not apply, but we do not find any reason (unless the contract itself exempts it) for not apply the rebus sic stantibus clause to said contracts, obviously, if the previously stated requirements are met.
A modification could be negotiated in the period of return of the quotas or of the conditions of the contract.
As is known, Royal Decree-Law 8/2020, of March 17, on extraordinary urgent measures to deal with the economic and social impact of COVID-19, adopts an urgent measure aimed at ensuring the protection of mortgage debtors in situation of vulnerability after the approval of Royal Decree 463/2020, of March 14, declaring the state of alarm for the management of the health crisis situation caused by COVID-19.
This Royal Decree-Law establishes a moratorium on the payment of mortgage payments for particularly vulnerable groups, declaring its Statement of Reasons that “it is of special importance to guarantee the right to housing for mortgage debtors in a situation of special vulnerability who see their income reduced as a result of the COVID-19 health crisis”.
Its articles 7 to 16 establish measures leading to seeking a moratorium on mortgage debt for the acquisition of the habitual residence of those who suffer extraordinary difficulties to meet their payment as a result of this crisis. Its article 9 establishes which are the cases of “economic vulnerability” that must be alleged to benefit from the moratorium, among which is “The mortgage debtor who becomes unemployed or, in the case of being a businessman or professional, suffer a substantial loss of revenue or a substantial drop in sales.”
- Material supply contracts
As usual, companies enter into contracts with suppliers, agreeing on the price of the goods to be supplied throughout the duration of the contract. However, no price review mechanisms are established, or causes for suspension of the contract to regulate situations arising from a sudden and unforeseeable change in circumstances, such as the arrival, in this case, of a global pandemic.
In this regard, the rebus sic stantibus clause is understood to be tacitly included in this type of contract, and would allow the parties, provided that the requirements derived from contractual good faith are respected, to carry out temporary contractual novations. , in such a way that, among other things, the payment terms are modified or deferred or even the enforceability of said obligation is suspended or rendered ineffective, during the period of time that the trade stoppage remains.
As in the other cases, the parties must negotiate and agree on temporary contractual conditions that, on the one hand, make it possible to avoid breaches by the parties, and, on the other, that make it possible to return the terms and conditions of the contract to normality, as soon as they reactivate the economic activity of the country.
To conclude, as we have seen, there are no legal solutions of unilateral and direct application, so one must appeal, above all, to the good faith and common sense of the contracting parties, trying to apply the existing tools in our legal system so that both parties they can be satisfied with the solution that is adopted, without any of them having to assume the entire burden derived from this extraordinary situation that we are now going through.