What is the impact of the pandemic on existing contracts and their fulfillment? Is COVID-19 aForce Majeure situation? What are the legal consequences of not being able to meet thecontractual obligations due to the epidemic? We are going through the most frequently askedquestions in this article to summarize how this current situation may affect our private contractsand their performance.

First of all, the provisions of your contract shall always prevail

If one of the contracting parties claims external circumstances to be the reason of the inability tofulfill his contractual obligations (e.g. due to the COVID-19 pandemic), we need to apply therelevant provisions of the contract to determine the legal consequences after thoroughlyexamining and evaluating the circumstance. The simplest way is to follow the relevantregulations, the so-called Force Majeure Clause of our contract, if there is one.

However, if there is no such Clause in our contract or it does not provide a clear answer to ourgiven situation, then the provisions of the Civil Code shall prevail to determine the legal consequences.

What does Force Majeure mean?

The Civil Code does not give us a definition of Force Majeure, but according to the case-law,the term goes like:

Force Majeure is an ​irresistible force of natural or human origin​ which is ​absolute in nature​ and cannot be prevented by any means available​, therefore it makes impossible to perform theexisting contract. (e.g. natural disasters like earthquakes and fires or the event of war,revolution, etc.)

Breach of contract as a consequence of Force Majeure

If one of the contracting parties is unable to fulfill its contractual obligations, we are talking abouta breach of contract. For example, late or inadequate performance (in terms of quality orquantity) may be considered as a breach of contract.

Breach of contract simply means thefailure to perform any obligations under the contract.Unless the parties have agreed otherwise in their contract about the consequences of suchcases, then the provisions of the Civil Code shall prevail. This stipulates that anyone whocauses damage to the other party by violating the contract shall be obliged to compensate it.

However, one shall be relieved of liability if able to prove that:

One shall only be relieved of bearing the legal consequences of breaching the contract if, andonly if, all three of the above statutory conditions are met.

Now let us address these three conditions in order:

1. The damage occurred in consequence of a circumstance beyond one’s control
   A circumstance is considered to be beyond one’s control if the event that triggers thecircumstance is beyond the command of the defaulting party. In other words, an eventthat he is unable to influence. One typical example for circumstances outside the command of the defaulting party isthe Force Majeure situation. ​There is no general answer to whether the circumstancecaused by the COVID-19 pandemic and the related measures introduced by thegovernment would fall into the topic of Force Majeure​. It can only be determined byexamining the contract and evaluating all the specific circumstances at the givensituation on a case-by-case basis, which ultimately falls within the jurisdiction of thecourt. Note: the Hungarian Curia did not consider the global financial crisis of 2008 to bea Force Majeure situation either.
2. The circumstance was unforeseeable when signing the contract
   Whether the circumstance that caused the breach of contract was foreseeable at thetime of signing the contract must always be assessed on a case-by-case basis. Generally speaking, contracts signed before 2020 are more likely to invoke COVID-19 asan unforeseen event compared to agreements signed later, as the pandemic and itspossible consequences could already be expected all over the world at the beginning of the year.