I signed a contract to buy a condo in Mexico. Can I get out of it because of COVID-19?
In addition to important public health considerations, the international pandemic of COVID-19 will affect many people economically. There will be people and companies that will not be able to fulfill their obligations and contracts. So, is the situation created by COVID-19 a circumstance that makes it easier to get out of contracts? Does it have the effect of preventing default from being qualified as an “intentionally wrongful act”?
If your contract has written provisions for extraordinary circumstances, you are one of the lucky few. Most contracts do not contain clauses that could apply to the conditions that we are living in today because of COVID-19. Does Mexican law provide solutions to problems like this?
Generally speaking, yes! Legislation in Mexico considers this type of circumstance as a Force Majeure. According to the United Nations International Law Commission, the term Force Majeure was originally taken from the Napoleonic code, and it refers to extraordinary circumstances causes by humans or nature.
In Mexico, Force Majeure is defined as an unforeseen event, outside of someone’s control, that makes it impossible for that person to perform an action that he or she was previously obligated to do. Under Mexican law, no one is expected to perform the impossible. Since COVID-19 was an extreme and unforeseen event, Force Majeure can be used as a defense in litigation against contract termination, penalties and consequential damages arising from breach of obligation.
If you signed a contract in Quintana Roo, it is likely that the Civil Code of Quintana Roo will be the applicable legislation to all terms not clearly determined in the contract. Often, because of hurricanes and other events of nature, there are stipulations on Force Majeure. As a result, the first option in this scenario will always be to have a lawyer review the contract to assess what type of penalties might apply to the defaulting party.
What happens if I breach any of my contractual obligations?
Generally, contracts contain penalties for both parties who sign a contract in case of default.
In the circumstances of COVID-19, it’s impossible to say yes or no without knowing the circumstances of the particular case and the clauses of the contract. However, in our experience as litigation lawyers, there is legislation and precedents that will help support your case if you need to terminate your contract because of COVID-19 without paying penalties and/or consequential damages. Force Majeure can be used as a defense, though to use it successfully your lawyer needs to be skillful and experienced. Judges are not obliged to consider Force Majeure if your case was not properly argued as such. And it’s important to note that in Mexico, contracts cannot be unilaterally terminated without a judgment.
If your case is successfully framed as Force Majeure, it may prevent contract termination, etc. from being qualified as an “intentionally wrongful act”, as the current circumstances could not have been known before the contract was signed. As a result, in the best-case scenario, you will not be forced to pay consequential damages or penalties.
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