By Hugo Hidalgo Arroyo.
APPLICATION OF THE THEORY OF UNFORESEEABILITY IN MEXICO. CAN IT BE INVOKED DURING THE CURRENT COVID-19 PANDEMIC?
The current Covid-19 pandemic has prevented many parties from fulfilling their commercial obligations acquired or contracted before it broke out. The so-called Theory of Unforeseeability is a legal concept whose main postulate is that an obligation will be enforceable provided that the circumstances under which it was acquired or agreed upon have not changed.
The purpose of the foregoing is to redress the balance of contractual benefits. In other words, one party should not receive greater benefits than the other by preserving the conditions of a contract that was drawn up before an unforeseeable and unavoidable event. The Theory of Unforeseeability is generally applicable to medium- and long-term contracts of continuing performance.
It is important not to confuse the Theory of Unforeseeability with force majeure. Even though there may be a number of similarities, such as the occurrence of extraordinary and unforeseeable circumstances, the main difference is that in cases involving the Theory of Unforeseeability, altered circumstances do not make it impossible to fulfill the obligation. In cases of force majeure, they do.
As far as Mexican Federal Law is concerned, there are no provisions that expressly contemplate the Theory of Unforeseeability. Federal Civil Code Article 1796 stipulates that contracts bind the contracting parties to abide by “what has been expressly agreed”. Therefore, this does not give rise to the invocation of a supervening event that produces contractual imbalances.
Neither has this theory been provided for in mercantile law (a federal matter in our country). The foregoing has been confirmed in opinions issued by the Federal Judicial Branch.
Local legislation, namely the Mexico City Civil Code, has provided for and regulated the Theory of Unforeseeability since 2010. Its Article 1796 stipulates that this theory applies to fixed-term contracts, contracts subject to special conditions, or continuing-performance contracts.
In a global context, the Advisory Council of the United Nations Convention on Contracts for the International Sale of Goods (CISG-AC) has issued Opinion No. 7 interpreting Article 79 of said Convention, where it states that an unexpected and unforeseeable situation that hampers a party or prevents it from fulfilling its obligations (hardship) could be invoked as grounds for exoneration from liability. The foregoing clearly refers to the application of the Theory of Unforeseeability.
Finally, in the context of the Covid-19 pandemic, could the Theory of Unforeseeability be invoked to correct contractual imbalances? This is not an easy question to answer. Each particular case needs to be studied in depth but, in principle, legislation applicable to the contract will have to be reviewed together with how the pandemic specifically impacted contractual obligations. Furthermore, it is important to perform an analysis to determine whether the particular situation is a case of force majeure or a case potentially requiring the application of the Theory of Unforeseeability.