One of the most significant debates in private law, particularly in the law of obligations, concerns the extent to which a juridical act must be performed in accordance with the principle of pacta sunt servanda when the circumstances existing at the time of its execution change in an extraordinary manner and substantially alter the balance of the parties’ respective performances. This debate has gained particular relevance in recent years in light of events such as the COVID-19 pandemic, inflation, geopolitical conflicts, and the rise of protectionist trade measures.
At its core, the issue lies in reconciling two principles that, while complementary, frequently come into tension. On the one hand, the principle of pacta sunt servanda provides that contracts are binding according to their agreed terms and constitutes the principal safeguard of legal certainty in private legal relationships. On the other hand, the rebus sic stantibus clause is premised on the understanding that contractual obligations are assumed under a particular set of circumstances and that, if those circumstances change in an extraordinary and unforeseeable manner, it may become necessary to restore the contractual equilibrium.
Far from constituting an exception to the binding force of contracts, the doctrine of hardship seeks to preserve the economic purpose that induced the parties to contract, preventing extraordinary events from transforming an obligation that was initially reasonable into one that becomes excessively onerous for one of the parties.
Against this backdrop, it is appropriate to examine the scope of this doctrine:
1. Concept. The doctrine of hardship recognizes that juridical acts are not entered into in isolation, but rather against a backdrop of specific economic, legal, and social conditions that the parties reasonably regard as stable at the time of contracting. When a subsequent event that is extraordinary, unforeseeable, and beyond the parties’ control substantially alters those conditions, the contractual equilibrium originally agreed upon may be disrupted.
Unlike force majeure or a fortuitous event, hardship does not render performance impossible. Performance remains legally possible; however, it imposes on one of the parties a disproportionate burden that exceeds the risks ordinarily assumed under the contract.
The distinction is significant. Whereas force majeure affects the very possibility of performance, the doctrine of hardship seeks to correct an economic imbalance arising from extraordinary circumstances that the parties could not reasonably have anticipated when allocating the risks of the transaction.
2. Legal Framework. The Mexican Federal Civil Code (Código Civil Federal, for its acronym in Spanish, the “CCF”) maintains, as a general rule, that contracts are binding according to their express terms and does not provide a mechanism allowing courts to revise contractual obligations when extraordinary events arise that disrupt their economic equilibrium. The same approach prevails under the Mexican Commercial Code (Código de Comercio, for its acronym in Spanish, the “CC”), which likewise does not incorporate the doctrine of hardship. This position has been consistently endorsed by the Mexican Federal Judiciary, which has held that, as a general rule, courts are not empowered to modify the contractual terms freely agreed upon by the parties.
The most significant exception is found in the Civil Code for Mexico City (Código Civil para la Ciudad de México, for its acronym in Spanish, the “CCCDMX”), which has expressly recognized the doctrine of hardship since 2010 through Articles 1796, 1796 Bis, and 1796 Ter. Under this framework, with respect to contracts subject to a term, a condition, or successive performance, the affected party may seek modification of the contract where extraordinary, unforeseeable events of a national character render performance excessively onerous. If the parties fail to reach an agreement within the statutory period, the court is authorized to determine whether the contract should be modified or, where appropriate, terminated.
Although this legislative reform represented a significant development, its practical application remains limited. One of its most debated features is the requirement that the triggering event be of a national character, thereby excluding numerous circumstances capable of materially disrupting the contractual equilibrium, such as regional natural disasters, localized supply chain disruptions, or economic crises affecting only certain sectors or regions of the country.
Moreover, several Mexican states have incorporated comparable mechanisms into their respective civil codes, albeit with differing requirements and scope. Accordingly, identifying the applicable law is essential before assessing the viability of invoking this doctrine.
3. International Perspective. At the international level, this issue has been addressed more comprehensively through the concept of hardship, as set forth in the UNIDROIT Principles of International Commercial Contracts, which constitute one of the leading references in the field of international commercial contracting.
Under the UNIDROIT Principles, the mere fact that performance of a contract has become more onerous does not, by itself, discharge a party from its contractual obligations. However, where supervening events fundamentally alter the economic equilibrium of the contract, whether because the cost of performance has increased substantially or because the value of the counter-performance has materially diminished, and such events were unforeseeable at the time of contracting, beyond the affected party’s control, and fall outside the risks assumed by that party, the disadvantaged party may request the renegotiation of the contract.
If the parties fail to reach an agreement within a reasonable period, the competent tribunal may adapt the contract in order to restore its equilibrium or, where appropriate, terminate it. This approach reflects an international trend favoring the preservation of contractual relationships over their termination whenever such preservation remains reasonable under the circumstances.
4. Requirements for Application. Although the doctrine of hardship generally rests upon common underlying principles, its availability depends on the applicable law, the nature of the contract, and, where applicable, the contractual provisions agreed upon by the parties. Consequently, the particular circumstances of each matter must be carefully evaluated, together with the governing legal framework, in order to determine the requirements and scope of the doctrine in the specific case.
Without prejudice to the foregoing, the application of the doctrine of hardship generally requires the concurrence of the following elements:
a) The relevant event must occur after the execution of the contract.
b) The event must have been extraordinary and unforeseeable for both parties at the time of contracting.
c) The event must be beyond the will and control of the party invoking the doctrine.
d) The event must produce a substantial disruption of the economic equilibrium of the performances originally agreed upon.
e) The excessive onerousness resulting from the event must exceed the risks that could reasonably have been foreseen or allocated between the parties at the time the contract was executed.
The foregoing demonstrates that the doctrine of hardship constitutes an exceptional mechanism designed to reconcile the principle of pacta sunt servanda with the need to preserve the contractual equilibrium where extraordinary events substantially alter the circumstances under which the parties entered into the contract. Nevertheless, its recognition under Mexican law remains ambiguous.
Accordingly, it is particularly important for parties to address the potential effects of extraordinary events during the negotiation stage. Depending on the nature of the transaction, the inclusion of price review or renegotiation provisions, cost adjustment mechanisms, index-based adjustment formulas, or hardship clauses may contribute to preserving the contractual equilibrium.
Ultimately, the analysis of the doctrine of hardship should not be confined to determining whether a legal provision expressly recognizes it. Rather, it requires a careful assessment of the particular circumstances of each case, the applicable legal regime, and the allocation of risks agreed upon by the parties. Sound contractual drafting remains the most effective means of preventing disputes and preserving the stability of commercial relationships.
