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COMMERCIAL DEBT COLLECTION IN MEXICO

by David R. Carlon,

Solberg & Kennedy

 
Is your Mexican client having “cash flow problems”?  Alleging a dispute but refuses to pay the undisputed balance of her invoice(s)?  Has she stopped taking your calls?  What significant differences, other than the obvious of language and culture, does an American debt collector encounter in Mexico?  Is your DSO beyond the industry average?  This article provides a thumbnail sketch of debt collection and related litigation in Mexico,  “la cobranza judicial.”

Statute of Limitations

Pagaré (Mexican Promissory Note):  Domestic Mexican transaction is 3 years from maturity date.  There are limited exceptions.  Consult a Mexican attorney for specific counsel.

Retail within Mexico from date of last payment:  1 year

Commercial within Mexico from date of last payment:  10 years 

 Retail and commercial international or cross-border transactions from date of last payment:  4 years

 Fraud involving credit or purchase of goods:  If perpetrated within Mexico, 1 year from the time the victim becomes aware of the fraudulent act, or admission by the perpetrator; 2 years if fraud involves an international or cross-border transaction.

NSF Checks

 · 6 months from date of rejection by the debtor’s bank (drawee) if the debtor (drawer) is located in Mexico and the debtor’s bank (drawee) is located out of the country.  Check must be presented to the debtor’s (drawer) bank (drawee) within 3 months (stale date).

· 1 month if both drawer and payee are located in Mexico but in different cities.

· 15 days if drawer and payee are located in Mexico and in the same city.

 The Pagaré (Mexican Promissory Note)

 Mexican law governing promissory notes is specific and unwavering.  Certain language and information must be contained in the pagaré to make it compliant with Mexican law and thusly, valid and enforceable throughout Mexico.  The pagaré must include:

 · The word pagaré must be expressly contained within the instrument itself.  If the note must be enforced, the Mexican court will look for the word pagaré, not promissory note.

 · The unconditional promise to pay a certain amount of money.  The denomination can be a foreign currency but the amount has to be specific.

 · The name of the bearer or beneficiary has to be specific.  The beneficiary can be an individual or a company.

 ·  The time and place where the note is subscribed.  A pagaré will not be enforceable if either is missing.  If it’s executed (signed) in the USA, make sure to include a governing law clause stipulating that Mexican Law applies.  When in doubt, always include the clause.

 · The original signature of the issuer of the pagaré.  An original signature provides for “expeditious” execution of prejudgment remedies.  A facsimile or copy machine signature can be pursued but the process is lengthy.  There are 2 basic proceedings used in collection litigation in Mexico:  Ordinary and executive proceedings.  An ordinary proceeding is used when a signed, original credit instrument or other title document “título ejecutivo” is missing.

 · The time and place where payment is to be made*.  This is not required for validity of the note, but is extremely important should enforcement of the pagaré become necessary, as it establishes proper venue and jurisdiction.  There are certain Mexican states that pose greater political, bureaucratic, and resource risk for pre and post-judgment enforcement, and should always be avoided when possible.  If no specific domicile is detailed the location where the pagaré was issued will likely be the venue.  The instrument will considered payable upon demand if the date of payment is missing (maturity date).

 · Draft the pagaré in Spanish and English*.  When possible draft the note in plain Spanish and English and accommodate both language versions in the same instrument. 

 *Not required for validity but recommended.

 Validation of Claim

 All Mexican commercial law pertaining to international transactions is governed by federal statute.  Because Mexico does not adhere to the principle of stare decisis, the significance of case law in Mexico is secondary compared to the importance given to the legal principle, rule or norm found in the applicable provision of a given statute or code. Thus in Mexico, unlike the United States, rather than focusing on case law and the legal value of precedents, Mexican legal research focuses on identifying the specific provision in a statute or code that applies and controls the contested issue or governs the case at bar. 

Mexican evidentiary rules (and certain statutory government documentation requirements) emphasize signed, original and binding documentation.  In the more cosmopolitan regions of Mexico, the average litigation cycle to collect or adjudicate a simple and contested commercial claim substantiated with signed, original documentation is 1~ 2 years, not including time for a possible appeal, or other legal maneuvers.  The same litigated collection claim not substantiated with a signed, original written contract, or an open account contract not substantiated with a signed, original credit application or agreement and other pertinent and original documentation can take 1 ~ 5 years in certain states of the Mexican Republic.  And complex commercial claims involving large sums of money can take up to 5 years to adjudicate.   Considering the aforementioned, will the business be around at the end of the day? 

 It’s vital that American service providers and exporters, contemplating or currently selling services or goods on open account to small ~ medium size Mexican businesses, develop and implement Mexico-specific credit policies and procedures.  Additionally, creditors should perform due diligence using Mexico-specific credit applications and agreements that at minimum stipulate terms, late payment interest, late charges, mutual responsibilities, identify the business’ RFC number (tax ID number), and include the names of personnel that are authorized to submit purchase orders. 

 When possible, companies should require an “aval” or personal guaranty of 2 principal stockholders of the company.  Make sure however, that the guarantors exclude the company name and their titles from the signature block.  When feasible, a company should request a “floating” pagaré with the credit application, as a security device to guarantee performance or payment. 

 Credit managers must hold their own with the sales department, insisting that: (1) credit applications and agreements be completely filled-out and signed by the authorized person of the corporation (the authorized person is designated via a specific power of attorney contained in the articles of incorporation, “títulos de crédito” of the  “acta consitutiva”); (2) the corporation submit documentation verifying the corporation is authorized to issue credit instruments (this authority is detailed in the corporation’s stated corporate purpose, “objeto social” of the “acta consitutiva”); (3)  all creditor history information must be verified prior to the credit granting decision; (4) and lastly, the signed, original credit application and agreement, and when applicable, the signed, original “aval” and the “floating pagaré” must be returned to the credit department prior to credit being issued.  Again, emphasis is on original signature(s) and documents because of the aforementioned evidentiary rules.

The credit department should also investigate whether the prospect is part of a larger corporate group.  The agricultural, construction and service industries are notorious for using undercapitalized shell companies for the sole purpose of securing credit.  And maquiladoras are often undercapitalized offshore subsidiaries of foreign companies that have no ownership of the assets that they use in their assembly operations.

Purchase orders that include payment terms, issued and signed by authorized personnel, are critical documents.  So are signed, original bills-of-lading and “contra-recibos”, or delivery receipts (request the original documents from the trucking or shipping company, and because most signatures are illegible, instruct the trucking or shipping company to always require the receiving person to print his or her name below or alongside the signature, along with date and time of receipt).  Faxed or e-mailed copies are okay but insist that the signed, original be delivered by mail or other means. 

If the debtor defaults on an open account beyond the boundary of the stated payment terms, require her to execute a Mexico-specific “pagaré” for the past due amount (and when pertinent include an “aval”). If the debtor refuses to execute a “pagaré” and “aval,” place the claim immediately for collection with a 3rd party. 

Like his American counterpart, the typical Mexican “comerciante” values her credit history and pays accounts promptly and diligently.  Nonetheless, it’s prudent to anticipate problems and plan accordingly.

¡Saludos!

David R. Carlon

Solberg & Kennedy, LLC

602-952-2007

866-952-2007 

www.solken.com

DISCLAIMER: The information in this article is not, nor is it intended to be, legal advice.  Consult a licensed Mexican attorney for legal advice pertaining to collection claims specific to Mexico.

I gratefully acknowledge the assistance of Romelio Hernández, Esq., President of HMH Legal of Tijuana, B.C., Mexico.  HMH Legal’s core focus is international debt collection and related litigation. 

Lic. Hernández, thanks again for your invaluable insight, perspective and counsel.