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Contractual obligations in the time of COVID-19

On March 11, 2020, the World Health Organization (WHO), declared coronavirus (“COVID-19”) a pandemic.

As a result thereof, the global economy has been and will continue to be strongly impacted.

It is advisable to all companies and businesses to carefully review the terms and conditions upon which they have contracted or engaged products, goods and services of any kind. Specifically, it is relevant to know the terms that apply to such agreements regarding force majeure events and/or the application of material adverse effect clauses.

Generally, if under an agreement a force majeure or act of God event occurs, a default may not materialize and, as a consequence thereof, the affected party may not be liable for such event nor for damages and/or losses caused to the other party.

Please consider, however, that if an agreement does not foresee a force majeure clause, the agreement’s governing law should be reviewed as it will be applied for act of God or force majeure events.

Under the Mexican legal framework, parties to an agreement may freely define “force majeure” and “material adverse effect.” Notwithstanding, the local civil codes for each Mexican state (for civil law matters), the Commerce Code (for commercial matters) and general principles of law foresee in a general manner cases and consequences with respect to obligations and liabilities affected by “force majeure or acts of God” events.

In any case, if you have concerns arising from a potential default of your or the counterparty’s obligations due to the situation caused by the COVID-19 pandemic, we strongly suggest to (i) document any and all evidence that may justify the default; (ii) know and carefully review the provisions related to adverse effects applicable to your agreements, and understand the way in which such provisions will apply; and (iii) analyze the possibility of agreeing to amendments to such obligations, in all cases with the intention of adopting convenient measures to mitigate or prevent the impact that this unusual situation may provoke in your business.

Should there be any query regarding the above, we will be happy to assist you.

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