As it has become widely known, the spread of Coronavirus COVID-19 and the regulations issued as a consequence by the Executive Branch have threatened the normal development of economic and production activities, making it difficult or even impeding the normal fulfillment of different contractual obligations.

In this context, we understand that is vital a thorough analysis of the provisions agreed among the parties, and of the facts and circumstances that affect each agreement in particular, to allow its adequate assessment under the legal framework provided by the Civil and Commercial Code (“CCC”).

1. Main legal concepts

  • Force Majeure/act of God: the CCC equalizes both concepts and defines them as the fact which could not be foreseen or that, if foreseen, could not be prevented.
    When the force majeure/act of God is final, its occurrence exempts the debtor of the obligation from liability and sets forth the termination of the obligation, unless agreed otherwise.
    When the impossibility to fulfill an obligation as a consequence of an event of force majeure/act of God is temporary, the obligation will terminate only if time is of the essence or when its duration frustrates irreversibly the intention of the creditor.
  • Unforseeability and readjustment: the CCC allows total or partial termination or adequation (readjustment) of an agreement as a consequence of an extraordinary change in the circumstances, prevailing at the time the contract was executed, that turns the obligation excessively burdensome, to the extent beyond the control of the parties and the risk assumed by the damaged party.
    Those remedies can be invoked under the scope of commutative contracts of permanent or deferred execution.
  • Frustration of the purpose of the contract: the CCC also authorizes the damaged party to terminate the agreement if the frustration is due to an extraordinary change in the circumstances, prevailing at the time the contract was executed, beyond the control of the parties and that exceeds the risk assumed by the injured party. If the frustration is temporary, the injured party will only have the right to terminate the agreement only if the fulfillment of an obligation is prevented within a certain timeframe that is of the essence.

Despite specific cases and what has been agreed in each contract, we consider that both the COVID-19 spread and the governmental measures that have been adopted as a consequence, could determine the existence of a force majeure/act of God event, as long as it can be demonstrated that the impossibility to fulfill is derived directly from the occurrence of those events.

As regards unforeseeability and frustration of the purpose due to COVID-19 and/or the legal regulations issued as a consequence, they could also be validly invoked by the damaged parties, if there is a link between those facts and the supervening burden or frustration, to the extent beyond the risk inherent to the agreement.

Effectiveness of the contractual provisions agreed between the parties and/or the application of one or more of the legal concepts described above may vary in each case.

Some of the issues that may have an impact are, among others, the existence of provisions limiting the liability of a party and/or waiving rights, public policy regulations that may affect a contract, and an eventual imbalance in the bargaining power of each party.

The contractual rights and obligations must be exercised and fulfilled, respectively, in good faith and, hence, any reasonable measure that may prevent or reduce or limit any damage must be adopted.

In any case, the exercise of a contractual right shall not be abusive and may be subject to judicial review to obtain its reparation or re-adequation.

2. Possible causes of action.

Any of the legal alternatives described in 1. above can be invoked both judicially and extrajudicially.

In cases of final or temporary force majeure, the CCC allows to suspend contractual obligations on one part until the other party is in a condition to perform under the contract.

Depending on the specific case and the relationship among the parties, a preventive measure could be filed to preserve a determined law or factual situation or to suspend certain acts or the exercise of certain rights, until the issue is solved in the judicial process.

There are already some precedents under which for purposes of preventive measures the COVID-19 spread has been considered as a force majeure/act of God event, outside of the control of the parties. This criterion may be expanded while the courts resume their intervention in the different cases that are pending to be solved as well as the cases that will be initiated as a consequence of the pandemic.

For further information, please do not hesitate to contact Mariano Rovelli, Eugenia Pracchia, Juan Pablo Bove, Federico Otero, Pablo Tarantino, Julián Razumny, and/or Agustín Griffi, or y

In the following link, you can access The Firm’s statement on COVID-19.

For information concerning COVID-19 legal implications, please refer here.