Mexico is currently going through a period of uncertainty and constant change that puts traders and individuals in a vulnerable position when doing business in the long term.

This lack of stability in the different sectors of the economy raises the question: What will happen if the market situation changes and I am unable to meet my obligations without affecting my assets?

In Mexico, contracts require parties to comply with that expressly agreed upon. However, in light of this situation, some states have provided escape mechanisms which make it possible to save businesses and commercial relations when the country's outlook changes abruptly.

These escape mechanisms are based on a concept known as "The Theory of Unpredictability" [Teoría de la Imprevisión].

The Theory of Unpredictability is a legal principle in Mexico that seeks to maintain balance in a civil or commercial transaction when it becomes excessively onerous for one of the parties.

For the Theory of Unpredictability to come into effect, the following requirements, among others, must be met:

(a) There must be a commercial or civil transaction which is excessively onerous for one of the parties;

(b) Its onerousness must be the result of an extraordinary national event; and

(c) Those involved could not have predicted the aforementioned event.

If the Theory of Unpredictability comes into effect, the transaction undergoes a “restructuring” to allow both parties to continue to make a profit and avoid possible losses, thus making it a very important principle for the current situation in the country.

But what happens with entities where the Theory of Unpredictability is not regulated?

Through a hermeneutic reading of the regulation in Mexico, one notes that there is no obstacle to the provisions of the Theory of Unpredictability being directly agreed in a contract, even if the state in which it was signed does not yet include it in its regulations.

With this in mind, we recommend customers and insurers to seek advice in order to make the relevant adjustments to their contracts to prevent an awkward trading position.