Covid-19 in Mexico: Impact on contracts and other obligations

The major question at the moment is: If companies are unable to fulfil our contractual obligations, do the parties can be exempted, in whole or in part, from fulfilling them?

According to the Mexican legal system, from one side provides the possibility to invoke the force majeure provisions, which can exempt from the fulfillment of contractual civil and commercial obligations, whose applicability is subject to confirm if there are specific terms previously agreed by the parties on this regard, but on the other side, it is permitted to the parties to request that contractual obligations be balanced in the face of an unforeseen change of circumstances.

There is a provision by Law called theory of “improvidence“ or “Rebus Sic Stantibus”, and according to this theory, the parties to contracts subject to term, condition or continued obligations have action to seek to recover contractual equilibrium if, during the term of the contract, extraordinary events of a national nature arise that were not possible to foresee and cause greater burdensome for the performance of the obligations in charge of one of the contracting parties.

The affected party by an unforeseeable extraordinary event is entitled to request to its counterpart to amend the contract, and if no agreement is reached between them, the affected party can submit it to a judge. In this case and if the request is appropriate, the affected party may choose between the amendment of the contract to re-establish the balance in the terms determined by the judge, or the termination of the contract under certain conditions.

It is important to note that this theory of improvidence does not provide the parties the right to suspend performance of the contract and in any case, its modification or termination will not affect performance of the services due prior to the event giving rise to the claim, but only those subsequent to it.

In addition to Mexico City, the theory of improvidence is ruled in the Civil Codes of Jalisco, Quintana Roo, Guanajuato, Aguascalientes, State of Mexico, Morelos, Sinaloa, Veracruz, Chihuahua, Coahuila and Tamaulipas, but not in the civil codes of the other states of the Republic or in the Federal Civil Code. 

The current judicial criteria (isolated until now) exclude the application of the theory of the unforeseen event to acts of commerce, therefore, its application could be limited to strictly civil acts, such as the leasing, mandate, bailment, among others. The provisions of this theory is not applicable to commercial contracts. 

The fact that Mexico is experiencing covid-19 does not imply that a force majeure case is automatically implied, meaning that it exempts in a general way the fulfillment of contractual obligations. 

There are few judicial precedents that indicate how to act (some isolated theses not directly applicable to the subject under discussion), despite the fact that during 2009, Mexico suffered from the influenza A (H1N1) pandemic. 

The presence of the covid-19 in Mexico in the short term could come to update events of force majeure that prevent the fulfillment of contractual obligations, but we emphasize that it is necessary to make a particular analysis of each case.