Covid-19: Latin America Overview | Contractual law

The advance of the COVID-19 pandemic, along with Public Health Emergency framework declared by the Decree of Necessity and Urgency (DNU) Nº 297/2020 have impacted severely in the ongoing contractual relationships.

In this scenario, to a greater or lesser extent, most contracts have met difficulties in their execution. In order to preserve their integrity and continuation, many tools that allow the review of such contracts and are contained in the Civil and Commercial Code are being applied. Among these legal instruments, we can mention the following:

(i) frustration of the contractual purpose: Article 1090 authorizes the aggrieved party to terminate the contract if the final frustration of its purpose is due to an extraordinary change in the circumstances existing at the time of its conclusion which is alien to the parties and exceeds the risk assumed by the party concerned. If the frustration of purpose is temporary, termination is possible only if the timely performance of an obligation whose time of performance is essential is prevented.

(ii) the theory of unpredictability: Article 1091 provides for the total or partial termination or adjustment of the contract if the performance of one of the parties becomes excessively onerous as a result of an extraordinary alteration of the circumstances existing at the time of its conclusion, arising from causes beyond the control of the parties and the risk assumed by the party concerned. Such remedies may be invoked in the context of commutative contracts for deferred or permanent execution.

(iii) the case of force majeure or fortuitous event: it consists of a fact that could not have been foreseen or, having been foreseen, could not have been avoided. In accordance with the provisions of Article 1730, fortuitous event or force majeure exempt from liability and provide for the extinction of the obligation, unless otherwise provided.

However, it releases the debtor from liability if the fortuitous event is not attributable to him, and provided that the impossibility of performance is established as a consequence of the extraordinary event. If, on the other hand, liability is imputable to the debtor, the primary obligation is transformed into an obligation to respond for the damage caused.

(iv) Impossibility of performance: article 1732 provides that the debtor of an obligation is exempt from performance it, and is not liable, if the obligation has been extinguished by objective and absolute impossibility of performance not attributable to the obligor. The existence of such impossibility must be assessed in the light of the requirements of good faith and the prohibition of the abusive exercise of rights.

(v) the doctrine of the “shared effort”:  is a doctrinal and jurisprudential construction that has been mostly applied in situations of economic crisis in Argentina. In December 2019, it was incorporated into our legal system through the enactment of Law 27.541 (Law of Social Solidarity and Productive Reactivation in the Framework of the Public Emergency), specifically in the area of UVA loans for the acquisition of housing and savings plans.

The principle of shared effort is a useful tool to preserve the contractual relationship and the fulfilment of obligations in a more equitable way between the parties, readjusting the benefits through an exercise of shared effort.

Furthermore, the Argentinian government has issued several decrees to regulate specific contractual relationships in the context of the COVID-19 pandemic, as occurs with:

  • Rental contracts: Through the DNU N°320/20 dated March 29th, the Argentine Executive Power has frozen the price of rentals as of March of this year for a period of six months, extended the term of rental contracts, extended the term of the guarantees by such contracts and suspended until September 30th of this year all evictions from those properties, even if previously ordered, and provided that the cause of such eviction is a failure to comply with the payment obligation.
  • Mortgage and pledges loans: Through the DNU N°319/20 dated March 29th, the value of mortgage loan payments installments on real estate destined for single dwelling  and the monthly payments of pledge loans updated per Acquisition Value Unit (UVA, for its Spanish acronym) are frozen for six months.
    The payment is established in at least three equal and consecutive monthly installments, with the first of them due, together with the installment of the credit that corresponds to the month of October of the current year. It also prohibits the application of moratorium, compensatory or punitive interest or other penalties provided in the contract.
    Likewise, said DNU suspends in the whole national territory the mortgage executions, judicial or extrajudicial -also in those cases that it has already been ordered-, in which the real right of guarantee falls on the indicated properties, and for loans that can be updated by UVA.
  • Credit Card agreements: The Central Bank of Argentina, through the Communication A 6964 dated April 10, establishes the refinancing of unpaid balances to a minimum of one year with 3 months of grace, and in 9 equal and consecutive monthly installments, which may only accrue compensatory interest and no other surcharge. It also provides for reducing to 43% the maximum nominal annual rate for compensatory interest that financial institutions may charge for credit card financing balances. Finally, it establishes the possibility of reversing direct and automatic debits within 30 calendar days.
  • Provision of line and mobile telephone, Internet, television, gas, water and electricity services: DNU N°311/2020 dated March 24, provides for the temporary suspension of the supply of essential services.  In this regard, the companies providing such services are ordered to refrain from suspending or cutting off the supply of such services in the event of late or non-payment of to three consecutive or alternate bills by vulnerable users. Likewise, it establishes that the companies providing these services must grant users payment facility plans to cancel the debts generated. All this must be in force for a period of 180 days.

Finally, the DNU establishes that the maximum reference prices for the commercialization of liquefied petroleum gas (LPG) in cylinders and/or bulk destined for consumption in the internal market, will continue with the current values for 180 days.