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Contract formation

Mexican Commercial Law does not specifically define the concept of 'commercial contract' or 'commercial obligation', nor elaborates on the requisites for their formation. However, such provisions can be found in the civil law.

Under the Mexican Federal Civil Code (Article 1794), the essential elements for the formation of any contract are the parties' consent and the purpose of the contract. Additionally, when required by law, certain solemn formalities should be followed. If any of these elements is missing, such contract would be deemed inexistent and thus unenforceable.

In addition (Article 1795, Mexican Federal Civil Code), a contract may be invalidated if any of the following is missing:

  1. capacity of the parties;
  2. absence of vices of consent;
  3. a valid subject matter; and
  4. the contract's form, if required by law.

Likewise, the lack of any of such elements will result in an unenforceable contract.

The first essential element for the existence or modification of a contract is the consent of its parties; in order for consent to be perfected, 'offer and acceptance' must be present. The concept of 'offer' implicates a unilateral proposal from one party, which, if accepted in its terms by its counterparty, will constitute a contract. If such acceptance involves a change of the offer's original terms, then a new offer will be in place that should be accepted in such new terms for the contract to be perfected. There are two ways to accept an offer, which may be either express (by a verbal or written statement) or implied (by its performance); however, the parties may also require express acceptance as a condition for the enforceability of the contract.

In addition, consent must be valid and truly intended, absent of any vices thereto. Following the civil law theory, a contract will be formed only through the valid consent of each of its parties, rendering such consent as ineffective if impaired by any of the legally recognised 'vices of consent', such as error, fraud, duress or unconscionable bargain.

As for the second essential element, the contract's subject matter should always be valid, meaning that the rights and obligations therein, as well as the goods or services subject thereto, must be legal, possible and merchantable.

As for the formalities of the contract itself, as a general rule, as long as there is consent and the contract's subject matter is legal, contracts may be agreed either verbally or in writing. However, certain types of contracts must be in writing. For example, when its value or consideration exceeds a certain amount (i.e., acquisition and transfer of real estate rights, donations or settlements). Other examples include promissory agreements, powers-of-attorney, security agreements (e.g., mortgages, pledges, securities and trust agreements), construction, lease or services agreements, association, partnership or shareholders agreements, or adhesion contracts.

In the same way, certain contracts, because of the amount of their consideration, should be prepared by and executed before a notary public and then formally filed before the applicable public registries. In such cases, the parties themselves, or their attorneys-in-fact with sufficient powers, must appear before the notary public for the process of notarisation of the contract, which is essential for its validity, even among the parties themselves.

As in most Latin American countries, in Mexico the notary public is of significant importance in the country's legal system. They are licensed attorneys and appointed officials who have the authority to officially attest to the truth of facts occurring in their presence, or to certify documents or authenticate signatures therein. Before the notarisation, it is the notary's duty to fully identify the parties and certify their authority and capacity, as well as the legal validity of the act itself. Therefore, there is a legal presumption that a contract executed before a notary public is valid; however, despite the notary's certification, the parties must always comply with the contract's legal requirements for it to be valid.

If the above-mentioned requisites are fulfilled, the parties may agree to almost any obligation they wish, as well as on their assignment or termination.

Regarding the obligations or covenants agreed in contracts, Mexican law allows the contracting parties to condition their enforcement or termination. Contracts may include conditions precedent or suspensive conditions, in the sense that an agreed obligation (or covenant) will only rise when and whether such condition occurs. Likewise, the occurrence of subsequent conditions or resolutory conditions will terminate an obligation (or covenant) by returning things to their former condition, as though it never existed.