Is the impact of Covid-19 to be addressed as a force majeure event on contractual relationships in Italy?
Contractual responsibility and force majeure under Italian law
The contractual responsibility is regulated by article 1218 of the Italian Civil Code.
If the debtor is in breach of contract with no valid reason, he is responsible unless he proves that the reason for not performing the contract is somehow justified.
The debtor who fails to perform a contract is required to pay compensation for the damage unless he proves that the non-fulfillment or the delay was determined by the impossibility to perform the contract. Of course the impossibility has to be mainly motivated for reasons not attributable to the debtor.
A way for not attributing responsibility to whom does not perform an agreement already in place is the force majeure.
We can confirm that the pandemic might be a justified reason for not performing an agreement, however we need to understand if this is enough to prove our lack of responsibility.
The law does not specifically set out the consequences of the Covid-19 for contracts. This means that usual legal principle will apply. Also, Italian law and Civil Code do not specifically explain the meaning of force majeure (Forza Maggiore).
Is Coronavirus a Force Majeure Event?
Generally talking the part of the contract who does no longer intend to proceed with the purchase or sale of a property after the signature of a preliminary contract, shall prove that:
- The extraordinary event was unpredictable
- The pandemic has caused an unequal condition between parties, so that the disadvantaged party is entitle to cancel the agreement.
Regarding point 1. is out of the question that coronavirus was totally unpredictable for everyone.
With reference to point 2. this is something that must be proven concretely.
What does Italian High Court say?
For instance, the Civil High Court case nr. 9314, section II of 11 April, 2017 states that the resolution of a contract for excessive burden does not apply in case a) the value of the property consistently increases or b) because of currency depreciation. In fact both parties should have known that similar events could happen.
Basically, what the High Court makes clear is that it is highly unlikely that a party can rely on a force majeure simply because performance is objectively more expensive and difficult or commercially undesirable.
Moreover, if just a clause of a contract is affected by force majeure event, all parties should perform the unaffected part of the contract, which will continue to operate in full effect.
Italian Legal Provisions
Some Italian legal provisions might help us to clarify.
Good faith: Article 1375 of the Italian Civil Code states that the parties shall perform the obligations set out under a contract in good faith.
Moreover, article 1175 of the Civil Code contains a general clause of good faith.
Italian law imposes the parties to a contract a mandatory duty of good faith in performance on every contract, so that any party to a preliminary contract who try to gain from the pandemic, and accuse the other party for not completing the sale would not act in good faith.
Supervening impossibility: This is the impossibility to perform a contract and which arises after the formation of the contract itself. The contract becomes void if the legal obligation becomes totally impossible to comply, at any future date.
However, a temporary impossibility to perform a contract, let's say for emergency reasons, cannot be used as an excuse for not performing the same contract when the emergency measure will be over. Normally it will be a matter of simply delaying the final deed of sale to a future date.
In conclusion, we can confirm that Covid-19 may affect some contracts, however the pandemic cannot be used as an excuse for not performing an agreement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
