Coronavirus COVID-19

Special Information Briefing COVID-19 (No. 6): The legal consequences in the civil sphere due to potential contractual breaches resulting from COVID-19

19/03/2020

this briefing analyses the implication that the COVID-19 Crisis may have on the development of contracts (to which Spanish law is applicable) and the possibility that this situation will come before Spanish civil courts.

On 11 March 2020, the World Health Organization (“WHO”) declared COVID-19 to be an international pandemic. With the goal of confronting the health crisis, on 14 March the Spanish Government declared a state of alarm for a period of 15 days, adopting extraordinary temporary measures in order to contain the virus and mitigate the health, social and economic impact thereof1 (the “COVID-19 Crisis”). The COVID-19 Crisis could be considered to be an extraordinary situation and, while it continues, many contractual relations may be affected in the sense that parties may not be able to comply with their contractual obligations in a timely and complete manner.

Contracts have the binding force of law between parties and they obligate them to comply with the agreed terms, meaning that the debtor assumes responsibility in the event of a breach. In cases whereby compliance with the contract is impossible or whereby there is a sudden change in the circumstances, the law demands that the parties do everything possible in order to overcome this situation and comply with the agreement, for example, by way of the extension of deadlines or alternative compliance.

If performance is not possible, and based on the principle of good faith, the law allows for various exceptions that add flexibility to the compliance obligation and the responsibility of the debtor: those being force majeure and rebus sic stantibus. In accordance with these exceptions, the party obligated to comply is released of its liability for non-performance (the obligation being temporarily or permanently extinguished) or the contractual relationship is amended or terminated.

The entire content of the Information Briefing can be found in the PDF.

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