Obligation to pay debt in the “COVID – 19” period

On February 1, 2020, Prime Minister Nguyen Xuan Phuc signed Decision No. 173/QD-TTg on announcing the acute respiratory infection caused by Covid-19 in Vietnam. The outbreak of Covid-19 in Vietnam affects the economy severely; many businesses had to stop operations resulting in many losses and resulted in contract breaches, breach of payment obligations, etc.

Because of the above influence, the issue of “force majeure events” clause in contract is applied in many cases such as “How can I produce and trade when raw material suppliers do not export raw materials?”; “The shop cannot operate without revenue. This is force majeure so it is impossible to pay for goods, rent, staff salaries ….. ”

Taking advantage of the epidemic situation, many businesses and businesses cited the reason of “Force majeure event”, namely the case of Covid-19 outbreak to request a waiver of civil liability for breach of contract, especially breach of payment obligations, or repudiation of payment obligations because of Covid -19 affected under Clause 2, Article 351 of the 2015 Civil Code.

Vietnamese Law on “Force Majeure Events”?

In fact, many incidents occurred that prevent civil contracts from proceeding smoothly, affecting the implementation of contractual agreements, including those that are beyond the ability to predict and control  between the parties and occurs without fault of the parties.

In Clause 1, Article 156 of the 2015 Civil Code:

Force majeure events or objective obstacles make the holder the right to initiate a lawsuit, the right to demand cannot initiate a lawsuit, and the request is within the limitation period.

Force majeure events are events that occur in an objective, unpredictable and irreparable manner despite the application of all necessary measures and capabilities.

Objective obstacles are obstacles caused by objective circumstances that prevent people with civil rights and obligations from knowing that their legitimate rights and interests have been infringed upon or unable to exercise their rights and civil obligations

From this it can be understood that the condition to be considered as “Force Majeure Event” when meeting three factors.

+ Objectively occurring: The event must be outside the control between the parties violating the contract.

+ Unforeseeable: The consequences occur unforeseen at the time of conclusion of the contract or during the performance of the contract until the time of the violation.

+ The consequences cannot be overcome although all necessary measures and allowances have been applied.

“Force majeure events” caused by Covid-19 epidemic, businesses are exempt from civil liability in the contract?

In many cases, the borrowers borrow money or have to pay money for goods or service using the “Force Majeure Event” reason to refuse or delay payment obligations under Clause 2, Article 351 of the 2015 Civil Code.Where the obligor fails to perform the obligation due to a force majeure event, it shall not be liable to civil liability, unless otherwise agreed or provided for by law.

In Clause 1, Article 351 of the 2015 Civil Code, “Civil liability is understood as a liability arising from the obligation of the obligor (the violating party) to violate the obligations to the obligee (the aggrieved party). Breach of an obligation is the breach of the party by the failure to perform the obligations on time, to perform the obligations incompletely or improperly perform the contents of the obligation.

In fact, the Civil Code 2015 does not provide specific provisions on the relationship between force majeure events and contract performance. But in the 2005 Commercial Law, there is a broader provision on “Force Majeure Events”, remedies and exemption from liability of the violating party. Therefore, we can understand that the “Force Majeure Event” must be the cause of the direct impact on the breach of failure to fulfill the contractual obligations so it shall be exempt from the liability at Point b, Clause 1, Article 294 of the 2005 Commercial Law and also in this provision in paragraph 2 also stipulate “The violating party must be obliged to prove the case of liability waiver”.

In a contractual relationship, contractual obligations and liability for breach of contract are two different legal categories. Contractual obligations are the obligations of the parties arising from the agreements in the contract. In principle, contractual obligations are not exempted, unless the violated party waives or proactively waives, partially or wholly that obligation. The liability due to a contract breach is a civil liability arising from the breach of contract by the breaching party to the other party (the aggrieved party). Civil liability only arises when there is a breach of contract, including penalty for breach, compensation for damages and other liabilities in accordance with the law and agreement of the parties. Civil liability may be waived in some cases, such as a force majeure event.

Thus, in the case of an enterprise breaching a contract due to Covid-19, it is not responsible for breach of contract with the aggrieved party (unless otherwise provided by law or otherwise agreed by the parties), but the enterprise will not be exempted from performing contractual obligations with the other party, unless the violated party proactively exempts, partially or wholly reduces those obligations.

In addition to payment obligations in typical contracts such as purchase and sale contracts, the 2015 Civil Code provides that

Article 434 “Term of performance of sale contract” and Article 440 “Payment obligation” are due to the Buyer and Seller agree by the time limit for performance of the contract, if not specified, the buyer must pay at the time of receipt of the purchased property or the receipt of the property ownership certificate

Clause 1, Article 466 “Borrower’s obligation to pay debts” If the borrower borrows asset which is money, he has to pay back in full when it is due.

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