“From Winter, plague and pestilence, good lord deliver us”Thomas Nashe, 1592
In general, the purpose of a Force Majeure clause in a contract is to excuse both parties from liability when an extraordinary event or circumstance beyond their control prevents one or both of them from fulfilling their obligations under that contract.
“Pacta Sunt Servanda” or “a contract is always a Contract” … is the rule that says that for the performance of a Contract one must adhere to its terms.
“Rebus Sic Stantibus” or “while things remain the same” … is the rule that says that for performance of a Contract, one must take into consideration the actual circumstances that convinced the parties to develop the contract at such time, and that when such circumstances change, it follows that a modification or resolution of this contract should arise to prevent unfairness at the time of actual performance.
Article 1796 of the Federal Civil Code in Mexico was amended in January 2010 to recognize the possibility to “recover the equilibrium of obligations between the parties in accordance to the procedure” stipulated in Article 1796 Bis.
This process is as follows:
Article 1796 Bis. In the occurrence of the second paragraph of the precedent article, there is a right to ask for the modification of the contract. This petition must be made within the following 30 days of the extraordinary occurrence, provided motives are indicated.
Unlike English or Common Law, Mexican Law does not require that a Force Majoure clause be written and agreed to in a contract. It is also highly doubtful that a waiver of Articles 1796 and/or 1796 Bis of the Federal Mexican Civil Code would be considered legal and just in Mexican Tribunals.
So, the question for Supply or Purchase Managers in Mexico is, when do I have the right to rely or to question the validity of “contract modification” in accordance to Civil or Commercial Laws in Mexico?
The H1N1 “Swine Flu” Pandemia of 2009 that affected Mexico greatly was surely in the mind of the federal lawmakers when they amended the Civil Code and the Federal Labor Laws soon thereafter.
When is the time to file for a contract modification?
The answer is: When your international supply chain actually affects the ability of the petitioner to comply as agreed in the contract or, a surefire way is to await when the Mexican Government issues the compulsory Health Contingency Declaration in accordance to the Mexican Constitution provided such occurrence does not pass the 30 day term deadline (read our accompanying Labor Q&A about COVID-19 in Mexico).
In the case of International Contracts, their law and jurisdiction have great sway and some might be in conflict with the spirit or letter of articles 1796 and 1796 Bis of the Mexican Federal Civil Code. It might be possible that Force Majeure clauses be more narrowly construed in international contracts and might be interpreted on a contract-by-contract basis, taking into account the contract as a whole and the wider factual context.
Force majeure clauses are often forgotten or assumed to be simply standard boilerplate clauses, but the impact of the Coronavirus on the global supply chains has shown how important it is to ensure that an international force majeure clause is tailored to the contract which it is intended to protect, and reflects those issues common to that contract’s place of performance – whether that is earthquakes, hurricanes, governmental action in unstable political landscapes or, as in this case, epidemics originated in the far east.
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