Act of god, force majeure and the theory of the unforeseen in Guatemala
Ignacio Andrade, Lester Meda, Marta Alonzo
The global pandemic caused by COVID-19 and the Government provisions related to that matter may cause Contract breaches important to consider, and they implicate certain consequences and economic impact to the obligated part and the creditors in commercial and civil contracts.
Unfortunately, Guatemalan Legislation lacks of special considerations related to contractual remedies in extraordinary cases or in conditions in which beyond the control of the parties a contract may be breached.
In extraordinary cases, the compliance of existing obligations may result onerous or impossible to fulfill due to the current situation. In that sense, it is important to consider 3 legal figures that are recognized in Guatemalan Legislation in order to confront this type of situation, which are Unforeseen Events in Contracts, acts of providence and force majeure.
The situation is different in every legislation or international contract.
Each of these legal figures has different consequences:
1. ACTS OF PROVIDENCE, occur when:
a) Events caused without human will (from nature), unforeseen and difficult to predict;
b) There are no guilty subjects (caused without negligence, recklessness or inexperience);
c) In case of being a debtors ‘allegation and proven on Court (in case of being regulated in the Contract);
d) The Contractual Obligation is impossible to comply (the object of the contract is destroyed or lost);
e) It can´t be invoked by the part that already caused default;
f) Once it´s recognized, it waives the responsibility to comply with the Contractual Obligation and it waives the damages action (because of the impossibility to comply);
g) The total Contractual Obligation is canceled.
2. FORCE MAJEURE occurs when:
a) Inevitable Foreseen events;
b) The situation is caused as product of human will (a foreign third person in the contract);
c) It must be acknowledged in trail (in case of not being regulated in the Contract);
d) It can´t be invoked by the part that already caused default;
e) Once it´s recognized, it waives the responsibility to comply with the Contractual Obligation;
f) The total Contractual Obligation is canceled.
3. UNFORESEEN EVENTS IN CONTRACTS, occur when:
a) Due to serious disruptions that imbalance the Contracts benefits (such as a drop in prices or an exchange rate alteration or a natural disaster);
b) Unforeseen events that are not predicted nor voluntary;
c) It applies in Contracts that include periodic obligations (Leasing Contract) or with a long duration;
d) Left to will or a third persons guilt;
e) It must be alleged and declared on Court;
f) It causes an relative obstacle to comply with the Contractual Obligation (more onerous); but not impossible to comply with (although it may causes a risk in a payment delay, of great sacrifice or a financial loss to the debtor);
g) It doesn´t cause the waive of the responsibility to comply with the Contractual Obligation;
h) Contract may be modified or adjust to the new situation;
i) The suspension of the compliment of the Contractual Obligation can be declared.
It may be visually expressed as:
The analysis that has to be prepared regarding contractual obligations in extraordinary situations vary depending on the specific situation and every contract. Case-Law in Guatemala has been diverse, and has made the following declarations:
a) The one in charge of proving the cause of acts of providence, force majeure or unforeseen events in contract is the debtor.
b) The Courts have based the existence or inexistence of acts of providence or force majeure in specific contractual relations. Example: Termination of Leasing Contracts that don´t contain a specific regulation on acts of providence or force majeure, therefore termination can´t be done.
c) The Courts have considered that Contract regulation have to be respected over stipulations of the law.
d) It is important to make an adequate categorization of the 3 legal figures. Example: To alleged force majeure searching for the results of the unforeseen events in a contract.
In order to decide the course of action, you must consider the following:
1. What is causing the extraordinary situation? Is the Pandemic causing the situation or is it the Governments´ response?
2. The Contract settled by the parts regulate situations regarding acts of providence, force majeure or unforeseen events?
3. Which type of Contract is it? Is it a Contract which effects are already complied or one with contractual obligations pending of compliance? It is possible that only in the second scenario this type of allegation proceeds.
4. Do you which to terminate the Contract or modify it? If an act of providence is alleged, the expected legal effect is to terminate the Contract. If an unforeseen event is alleged, the expected legal effect is to modify the Contract.
5. Which is the other parties´ situation or condition? All periodic contracts have reciprocal obligations. Example: Rent payment, allow the usage of the property; Construction, the payment of the construction. What are the other parts' requirements?
6. Is it a Contract with international parties? In this case, the alleged figure may be different because of the existence of different legislations. Some Legislations don´t recognize the 3 legal figures.
7. How is the extraordinary situations´ effect going to be proven?
It is important to make a specific analysis for the case in question. We are willing to inform and analyze specific situations with our clients.
1. Depending on each case it must be determined if the obligation compliance is impossible (acts of providence or force majeure) or if the contract may be modified (unforeseen events in contracts).
2. A case may be presented, in which the Contract regulates cases of acts of providence, force majeure or unforeseen events, national law regulations only apply for those cases in which the contract regulates the 3 figures.
3. It is important to make a study of each case in particular in order to establish the best way to proceed.
4. We recommend that the Contract parties try to arrive to a negotiation in order to readjust the elements of the Contract to make it less onerous.
5. In the contrary, the declaration in Court may result more onerous for the parties involved, and it can take more time in order to solve.
6. In the case of Shopping Centers with high capacity of people it is important to consider that in case of opening for regular operation they may result responsible (civil or criminally – Art. 305 Criminal Law), but it is important to also consider the case of lessees that provide basic services, in which case, those businesses are obligated to open for regular operation because of the type of service they provide. By all means, the recommendation is to suspend all activities caused by the State of Public Calamity.
7. In the case of payment obligations that have to be complied during the State of Public Calamity, the recommendation is:
• If it is the case of the person obligated to comply with a payment, the recommendation is to condone or differ the payments.
• If it is the case of the person receiving the payment, be prepared to accept payment deferrals.
At Sfera, we are willing to support you in any dealings caused by the State of Public Calamity situation, in order to review Contractual obligations and bring you the best alternative or recommendation for the specific case.