Protection for Debt and Credit Obligations Due During the COVID-19 Pandemic

With the COVID-19 pandemic, along with the panic and anxiety it has caused, almost all people have exhausted their financial resources to buying, storing, and maintaining necessities. This leaves out the portion that should have been allotted to other expenses due. How about attending to obligations to pay and/or deliver something to creditors? This question bothers most debtors, especially employees who are now greatly affected because of the “no work, no pay” scheme that many companies from the private sector have adopted to sustain and preserve business continuity. 

With the given situation, the obligation itself, the liability, and the penalties caused by non-compliance can cause confusion and worry. Thus, it is important to be aware that the law provides protection for both debtors and creditors. 

Under the law, COVID-19 is a fortuitous event (caso fortuito) that comes as a valid defense of the debtors from non-fulfillment of their obligations. According to Article 1174 of the Civil Code, if the obligor is unable to comply with his obligation by reason of a fortuitous event, the general rule is that he is exempted from any liability. Thus, creditors cannot hold the debtors liable nor force the latter to fulfill their obligations. 

On the other hand, debtors cannot always escape fulfillment of obligations and liability under valid circumstances. To cite an example, in the case of Lasam vs. Smith, the Supreme Court laid down the following essential characteristics of caso fortuito: 

• The cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; 
• It must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; 
• The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and
• The debtor must be free from any participation in the aggravation of the injury resulting to the creditor. 

With the foregoing, the aforementioned general rule is not absolute. Thus, the debtor cannot always avail himself of the caso fortuito defense. Aside from the fact that the same should have the abovementioned characteristics, the law provides exceptions from the general rule, such as but not limited to the following: 

• When by law, the debtor is liable even for fortuitous events; 
• When by stipulation of the parties, the debtor is liable even for fortuitous events; 
• When the nature of the obligation requires the assumption of risk; 
• When the object of the obligation is lost and the loss is due partly to the fault of the debtor; 
• When the object of the obligation is lost and the loss occurs after the debtor has incurred in delay; 
• When the debtor promised to deliver the same thing to two or more persons who do not have the same interest; 
• When the obligation to deliver arises from a criminal offense; and
• When the obligation is generic.