The Coronavirus emergency impacts  existing contracts in various ways, in particular for two reasons:

  1. various regulatory provisions have been issued that prohibit or limit commercial and manufacturing activities;
  2. even regardless of regulatory provisions, the epidemic may constitute a force majeure event, which does not allow the performance to be carried out or renders it excessively burdensome.

As a consequence of this, it could happen that:

  1. the one who must perform a certain obligation is unable (finally or temporary) to perform it, or the one who must receive the performance is unable to exploit it; or
  2. the performance of the obligation by one of the parties becomes excessively burdensome.

From a legal point of view, the consequences for contracts subject to Italian law are as follows.

 

Supervening impossibility of performance

In case the performance of the obligation has become impossible:

  1. if the impossibility is total and definitive, the obligation is automatically extinguished without the need to take legal action, and the party required to perform is not liable for his/her breach (art. 1256 co. 1 of the Italian Civil Code). However, the latter cannot request that the other party perform the relevant counter-obligation (e.g. payment) or, if he/she has already received it, he/she will have to return it (art. 1463 of the Italian Civil Code);
  2. if the impossibility is temporary, the performance of the obligation can be resumed when the impossibility itself ceases, without liability for the delay for those who have to perform it. However, the obligation is extinguished as above if the impossibility persists until those who had to perform it can no longer be considered obliged to the performance, or the other party no longer has an interest in obtaining it (art. 1256 co. 2 cc).

In order for those who have to perform the obligation to be exempt from liability, the impossibility must be absolute and objective and not correspond to a simple greater difficulty of the performance or to a difficulty of a personal nature; moreover, it must not depend on the fault of the party who had to perform. Consequently, save for the need to make a case-by-case assessment:

  • where the performance of the obligation is prohibited by law (so-called “factum principis“), it would generally be considered impossible and exempt from liability pursuant to art. 1256 of the Italian Civil Code;
  • where the performance of the obligation is not prohibited by law but actually prevented by the epidemic, it will be necessary to establish whether the debtor can still be expected to make the necessary effort to perform it. This applies regardless of whether the contract contains a stipulation on force majeure, since it is a general principle of the Italian legal system;
  • where the performance of the obligation was undertaken when the impediment already existed or was foreseeable, the impossibility would generally not be exempt from liability and whoever must perform the obligation would probably be held responsible for the failure.

Impossibility can also concern those who must receive the performance: if it is impossible for him/her to exploit it, or if the purpose for which they entered into the contract becomes impossible, the obligation is extinguished. This is not expressly established by law but is a principle set forth by our case-law (amongst others, Civil Supreme decisions no. 16315/2007 and no. 26598/2007).

 

Supervening Excessive Burden

In contracts with obligations requiring continuous or periodic or deferred performance, if the performance of one of the parties has become excessively burdensome due to the occurrence of extraordinary and unforeseeable events, the party who must perform the obligation may request the termination of the contract. It is therefore necessary to check, case by case, whether, in the presence of the Coronavirus emergency:

  1. the service has become excessively burdensome;
  2. this is due to extraordinary and unpredictable events.

In the event of excessive burden, the termination of the contract does not take place automatically but requires an action in court. The party against whom termination is sought can avoid it by offering to amend the contract on equitable terms.

Termination for excessive burden does not apply if the burden falls within the normal risks of the stipulated contract.

 

Practical exemples

_Impossibility to perform the obligation due to regulatory prohibition: this could be the case, for example, of the company whose closure was imposed by law and therefore cannot provide the agreed products and / or services.

_Impossibility to perform the obligation due to the epidemic, even in the absence of a regulatory ban: this could be the case, for example, of the company which, despite being open, is unable to produce its products because they require components supplied from companies that are closed, or because its staff goes on strike due to the risks to which the company opening exposes them; or is unable to deliver the products in the areas most at risk because all the couriers serving them have suspended deliveries in those areas.

_Impossibility to receive the performance: this could be the case, for example, of the person who has booked a holiday but is no longer able to go there due to the prohibition of movement imposed by law.

_Obligation that becomes excessively burdensome: it could be the case, for example, of the company which, in order to obtain the materials necessary to produce its products, must bear much higher costs than it would have incurred in the absence of the epidemic.

 

Elena Martini – elena.martini@martinimanna.com