Contract formation

Good faith in negotiating

Is there an obligation to use good faith when negotiating a contract?

Yes, pursuant to article 1816 of the Federal Civil Code (of supplementary application to commercial law), contracts may be invalidated if a party’s bad faith affected the other party’s consent. Therefore, there is an implicit obligation for all parties in a contract to negotiate in good faith to ensure that consent is valid.

‘Battle of the forms’ disputes

How are ‘battle of the forms’ disputes resolved in your jurisdiction?

Pursuant to the Federal Civil Code (articles 1803-1811), the offeror is bound by its offer if it receives an acceptance by the other party on the same terms proposed in the offer. Thus, the offeror is released from the offer if the acceptance is made with different terms, and in such a case, the party that modifies the terms becomes the new offeror. The agreement will only be perfected when the terms of the acceptance mirror those of the offer.

Language requirements

Is there a legal requirement to draft the contract in the local language?

No. In practice, it is common to have commercial agreements drafted in English when parties have different nationalities. In the case of a trial before a Mexican court, it is necessary to present a translation of the agreement, certified by an expert authorised by the court. For that reason, it is recommended to draft the agreement in two languages (two columns), when possible.

Online contracts

Is it possible to agree a B2B contract online?

Yes, commercial agreements may be entered into online or through any electronic media or technology.

Any commercial operation that is performed through electronic means shall observe the provisions of the Commercial Code related to electronic commerce and data messages, including:

  • Information contained in data messages (information generated, sent, received or stored by electronic or optical means or by any other technology) is valid, has legal effect and is fully enforceable.
  • The information contained in the data message maintains its integrity, is accessible for further consultation and is attributable to a party, as established in article 93: ‘When the law requires that acts, agreements or contracts must be made in written form, this requirement will be deemed to be complied with in the case of data messages, provided that information contained therein is kept integral and is accessible for further consultation, without regard to the format in which it is contained or is represented.’
  • For a data message to be equivalent to a written document (which for contract formation means written and signed), the message will be attributable to the relevant party who signs it by an electronic signature that complies with requirements established by law.
  • Electronic signatures are equivalent to handwritten signatures as to their legal effects, and are admissible as evidence in litigation, if they are electronic data contained in a data message or attached or logically associated thereto by any technology, which is used to identify the signatory in relation to the data message and to indicate that the signatory approves the information contained in the data message.
  • Electronic signatures must be reliable: the electronic signature creation data must relate exclusively to the signatory and must be under the exclusive control of the signatory at the moment of the signing; it must be possible to detect any alteration to the electronic signature made after the signing and it must be possible to detect any alteration to the integrity of the data message made after the signing.

Statutory controls and implied terms

Controls on freedom to agree terms

Are there any statutory or other controls on parties’ freedom to agree terms in contracts between commercial parties in your jurisdiction?

The general rule is that parties have full freedom to agree terms in their commercial contracts. The only control established by law is that agreed terms must be licit to be enforceable between the parties in a commercial contract, as provided for in articles 77 (illicit agreements do not produce any obligation or action, even if they regard commercial operations) and 372 (in commercial purchases the parties are subject to the licit covenants they agree to) of the Commercial Code.

Standard form contracts

Are standard form contracts treated differently?

No, standard form contracts in B2B transactions are not treated differently by the law.

The only standard form contracts that have a special applicable regulation (Federal Consumer Protection Law) are the ones entered into by providers with consumers. Such law provides for mandatory or voluntary registration of standard form contracts (depending on the type of agreement). The authority is authorised to review contracts to detect abusive clauses or unequal conditions that harm consumers.

Implied terms

What terms are implied by law into the contract? Is it possible to exclude these in a commercial relationship?

Purchases that are made based on samples of merchandise known in the market (ie, merchandise whose quality, size, colour, and other features and characteristics are determined before the purchase and are known by the buyer without the need to see them physically) are enforceable with the mere consent of the parties. When the object of the purchase has not been seen by the buyer and cannot be classified in a certain quality known in the market, the contract is not enforceable until the buyer examines and accepts the merchandise (articles 373 and 374 of the Commercial Code).

The buyer has five days to review the merchandise and require the seller to amend any fault in quality or quantity, and 30 days to identify and claim internal defects thereof. After those periods have elapsed, the buyer has no legal action against such defaults.

These conditions may be modified or excluded in the agreement between the parties.

Vienna Convention

Is your jurisdiction a signatory to the United Nations Convention on Contracts for the International Sale of Goods (the Vienna Convention)?

Yes. Mexico adhered to the Vienna Convention on 29 December 1987, which became effective on 1 January 1989.

Good faith in entering and peforming

Is there an obligation to use good faith when entering and performing a contract?

Good faith is a general principle in Mexican law, which means honesty, trust and righteousness: the parties proceed sincerely to commercial agreements, and do not seek to deceive the other party but seek to act with honesty. Good faith is also a requirement for the validity of consent in the agreements, as established in article 1816 of the Federal Civil Code of supplementary application to commercial law (contracts may be invalidated if a party’s bad faith affected the other party’s consent).

However, there are two considerations that must be taken into account:

  • Agreements are ‘perfected’ by mere consent and oblige the parties to what was expressly agreed between them and to the corresponding consequences pursuant to good faith, use and the law. There is no formal obligation, merely a principle, to act in good faith.
  • In commercial law, it is understood that commercial operators are experts in their field, and that therefore a party should not be able to argue that the other party acted in bad faith. This principle may be derived by interpreting articles 17 of the Federal Civil Code and 385 of the Commercial Code:
    • Article 17 of the Federal Civil Code defines the concept of ‘injury’ as when someone obtains an excessive profit taking advantage of the other’s ignorance, inexperience or poverty. When this happens, the injured party may ask for nullification of the agreement or reduction of its obligation, plus payment of the damages caused.
    • Article 385 establishes that commercial purchases may not be rescinded for reasons of ‘injury’, but the damaged party may ask for payment of damages against the party that proceeds in fraud or malice in the agreement or its performance.

Limiting liability

Prohibition on exclusions and limitations

What liabilities cannot be excluded or limited by a supplier in a contract?

The parties to a commercial agreement are free to exclude or limit any liability in a contract, except for the liability arising from wilful mis­conduct, which is always enforceable as provided for in article 2106 of the Federal Civil Code: ‘Liability arising from wilful misconduct is always enforceable for all obligations. Waiver to make it enforceable is void.’ Therefore, such provision may not be waived by the parties in a contract.

Financial caps

Are there any statutory controls on using financial caps to limit liability for breach of contract?

Yes. Civil liability or damages for breach of contract can be limited by the parties in the agreement, pursuant to article 2117 of the Federal Civil Code. Nevertheless, liability arising from wilful misconduct is always enforceable, as provided for in article 2106 of the same code. This provision may not be waived by the parties.

Indemnities

Are there any statutory controls on indemnities used to cover liability risks in contracts?

Yes. If the parties establish a contractual penalty, pursuant to which the party in breach must pay to the other party a certain amount to indemnify for damages caused, the damaged party may claim the performance of the agreement or the contractual penalty, but not both (article 88 of the Commercial Code).

The aforementioned does not apply to commercial purchase agreements, where the damaged party may claim the termination or performance of the agreement and the indemnification for damages caused (article 376 of the Commercial Code).

Also, civil law establishes that the damage must be an immediate and direct consequence of the breach of the agreement, so no indirect, consequential or punitive damages may be claimed.

Liquidated damages

Are liquidated damages clauses enforceable and commonly used in your jurisdiction?

Yes, contractual penalties that mention liquidated damages are commonly used in commercial agreements. The only limitation is the one provided for in article 88 of the Commercial Code, which states that the damaged party may claim the performance of the agreement or the conventional penalty, but not both.

The aforementioned does not apply to commercial purchase agreements, where the damaged party may claim the termination or performance of the agreement and the indemnification for damage caused (article 376 of the Commercial Code).

Payment terms

Statutory time limits on payments

Are there statutory time limits for paying invoices? Is it possible to agree a different payment period?

The parties to a commercial contract may agree on any payment period they prefer, since the Commercial Code does not establish statutory limits.

The only statutory provision included in commercial legislation regarding time limits for payments is found in article 85 of the Commercial Code, which establishes that the effects of late payments start, for agreements that state a date for fulfilment of obligations, on the day following the maturity or expiration date; and for agreements that do not state a date for fulfilment of obligations, on the day following the request of the creditor to the debtor, either within a judicial procedure or outside of it in the presence of witnesses.

Late payment interest

Is statutory interest charged on late payments? Is it possible to agree a different rate of interest?

Yes, the Commercial Code provides different interest rates for late payments, depending on the type of agreement:

  • For commercial purchases, late payments will be charged with the ‘legal’ interest rate (article 380 of the Commercial Code). Such rate is established in article 2395 of the Federal Civil Code at 9 per cent per year.
  • For commercial loans, late payments will be charged with whatever interest rate the parties agree to, or in the absence of agreement, with a rate of 6 per cent per year.

It is possible for the parties in a commercial agreement to agree a different interest rate for late payments.

Civil penalties

What are the civil penalties for failing to comply with statutory interest rate or late payment of invoices?

Late payments will carry an obligation to the buyer to pay the legal interest rate on the debt, or the interest rate agreed in the contract.

Additionally, the party in breach must indemnify the other party for damage caused:

  • if a party is in breach of a commercial purchase contract, the other party may seek the termination or the performance of the agreement, plus damages; or
  • in other commercial contracts, the damaged party may request performance of the contract or payment of damages, but not both.

Termination

Implied terms

Do special rules apply to termination of a supply contract that will be implied by law into a contract? Can these terms be excluded or limited by including appropriate language in the contract?

The Commercial Code does not include any specific rules regarding termination of a supply contract.

In general, parties to a commercial contract may agree to any licit term in the language in the contract, including rules for termination of the agreement.

Notice period

If a contract does not include a notice period to terminate a contract, how is it calculated?

If the parties continue operating, then it can be deemed that the contract continues to be valid. If they end their relationship and activities associated with the purpose of the contract, then termination will be presumed. There is no provision that addresses automatic termination. However, from a procedural standpoint, a party that wishes to continue the performance of the contract will be subject to limitation periods to bring a claim.

Automatic termination on insolvency

Will a commercial contract terminate automatically on insolvency of the other party?

No, unless such consequence is established in the agreement. Language in commercial contracts usually includes provisions in this regard.

However, if a party becomes bankrupt and fails to pay its debts, the other party may seek legal action under the obligations derived from the contract.

Termination for financial distress

Are there restrictions on terminating a contract if the other party is in financial distress?

No, the Commercial Code does not address this situation. However, language in commercial contracts usually includes provisions in this regard.

Force majeure

Is force majeure recognised in your jurisdiction? What are the consequences of a force majeure event?

Yes, events of force majeure are recognised in both civil and commercial laws, and generally its consequences are the cancellation of the obligations of the party.

Normally the consequences for events of force majeure are included in the commercial agreements.

Subcontracting, assignment and third-party rights

Subcontracting without consent

May a supplier subcontract its obligations under the contract without seeking consent from the other party?

Yes, unless there is a provision in the agreement requiring otherwise. Language in commercial contracts usually includes provisions in this regard.

Statutory rules

Are there any statutory rules that apply to subcontracting in your jurisdiction?

Yes, but only regarding labour obligations and consequences regarding the employment relationship with the workers of the subcontracted party. There are no commercial statutory rules in this regard.

Assignment of rights and obligations

May a party assign its rights and obligations under the contract without seeking the other party’s consent?

Yes, unless there is a provision in the agreement requiring otherwise. Language in commercial contracts usually includes provisions in this regard.

What statutory controls apply to the assignment of rights or obligations under a supply contract?

There are no statutory controls in this regard.

Enforcement by third party

How may a third party enforce a term of the contract?

The third party should start an ordinary commercial procedure before a commercial court. In that procedure, the third party should first justify its legal interest in the contractual relation to which it is a third party. Then, it should address the specific term it is intending to enforce. If it is a beneficiary under a collateral or a promissory note, the issue could possibly be addressed in an expedited process before the commercial court, which is briefer than the ordinary procedure.

Disputes

Limitation periods

What are the limitation periods for breach of contract claims? Is it possible to agree a shorter limitation period?

The general rule for limitation periods of commercial claims that are not specified in the Commercial Code is 10 years. A limitation period for a breach of contract claim is not specified in the Commercial Code, so the general rule is applicable. However, there are other terms for specific kinds of actions and contracts.

Parties could agree to a shorter limitation period as part of the contractual terms. While the claimant might then challenge the validity of such a waiver of rights, commercial courts should respect the parties’ agreement, even if it referred to procedural rights, but it would be subject to the judge’s interpretation of the specific case.

Choice-of-law clauses

Do your courts recognise and respect choice-of-law clauses stipulating a foreign law?

Yes, courts must recognise and respect choice-of-law clauses, since Mexican law allows parties to select the law governing a contract in most instances, except if (article 15 of the Federal Civil Code):

  • the parties in the agreement artfully evade fundamental Mexican law principles (in this case, the judge must determine the fraudulent intention of the parties); and
  • the provisions of the foreign law or the result of their application are contrary to fundamental public policy principles or institutions in Mexico.

Do your courts recognise and respect choice-of-jurisdiction clauses stipulating a foreign jurisdiction?

Yes. Parties to a commercial contract may agree to a choice-of-jurisdiction clause to waive the forum provided by law and choose another jurisdiction (including a forum where they have their domiciles, where they have to perform any obligation of the agreement or where the object of the agreement is located), and courts must recognise and respect those clauses.

There are certain exceptions where jurisdiction may not be waived, such as the case of bankruptcy proceedings, which shall be established in the domicile of the debtor.

Efficiency of local legal system

How efficient and cost-effective is the local legal system in dealing with commercial disputes?

The local legal system in general is not as efficient and cost-effective as it should be, and that is true when dealing with commercial disputes. Only exceptionally pursuant to a recent reform, cases where a low amount is at stake can be tried under an oral procedure, which is more expeditious. Otherwise, the general procedure may take longer, as parties may file appeals and ultimately bring constitutional remedies against the final judgment, which may delay the procedure. A case may last from two to four years, depending on procedural alterations, such as incidental procedures and remedies.

If the parties agreed to arbitration, then there may be more benefits, considering that arbitration is recognised by the Commercial Code as a valid means to resolve commercial disputes between the parties, and referring disputes to arbitration is reasonably widespread.

New York Convention

Is your jurisdiction a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards? Which arbitration rules are commonly used in your jurisdiction?

Yes, Mexico adhered to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 14 April 1971.

Commonly used arbitration rules include the ones stipulated in the Commercial Code for ad hoc arbitrations, or, when dealing with institutional arbitration, the more common rules are the ones of the International Chamber of Commerce, the Mexico Arbitration Centre, the Chamber of Commerce of Mexico City or the Arbitration Centre for the Construction Industry.

Remedies

Available remedies

What remedies may a court or other adjudicator grant? Are punitive damages awarded for a breach of contract claim in your jurisdiction?

Remedies that may be granted by a court or other adjudicator in a breach of contract claim include specific performance of the agreement, termination of the agreement, enforcement of penalty clauses, damages and injunctions.

Civil law establishes that damages must be an immediate and direct consequence of the breach of the agreement, so no indirect, consequential or punitive damages may be claimed or awarded for a breach of contract claim in Mexico.

Only exceptionally has the Supreme Court granted punitive damages to a party in a case of civil liability, but not related to commercial agreements.

Update and trends

Recent developments

Are there any other current developments or emerging trends that should be noted?

No updates at this time.