In Mexico the Federal Civil Law regulates the fulfilment of contractual obligations, as there is no special commercial regulation on this matter; therefore, the breach of contractual obligations must be analysed pursuant to the Federal Civil Code.
I. Breach of contractual obligations
Federal courts have established that contracts are governed by the principle of pacta sunt servanda, according to which the contracts legally celebrated must be faithfully fulfilled. The breach of contractual obligations creates civil liability, which comprises the obligation of the non-performing party to compensate its counterparty for the damage and lost profits caused by having breached the contractual obligation. Additionally, civil legislation establishes specific rules for cases in which contractual obligations are breached, based on the distinction between obligations to do, not to do or give something.
In the case of obligations to do something, civil law establishes that if the person responsible to perform fails to do so, his or her counterparty has the right to request the specific performance, having the possibility of requesting that, at the expense of the non-performing party, another person executes the obligation when such substitution is possible. If the obligation is not performed under the agreed terms, the performing party can request the party at breach to ‘undo’ it. The obligations are enforceable at the expiration of the agreed term. In the absence of a specific term, performance must be made when required by the performing party.
Regarding obligations not to do something, the applicable legislation establishes that if the person obliged to abstain from carrying out certain conduct fails to comply with the obligation, that mere contravention will generate an obligation to compensate the damage and lost profits caused to the counterparty.
In the case of obligations to give something, applicable legislation provides that if the person who is obliged to give or deliver certain goods breaches the obligation, the counterparty has the right to claim the return of those goods or their value, in addition to the compensation for the damage caused and lost profits. The obligations are enforceable once the agreed term is met. If a deadline is not agreed, the performing party may only file a claim after 30 days of a payment request (either judicially or extrajudicially through a notary public or before two witnesses).
Although Mexican legislation does not establish specific means of evidence to demonstrate compliance or breach of obligations, judicial precedents have established that the affected party must only demonstrate the existence of a valid contract, meaning that the contract complies with all the applicable legal requirements; however, the party at breach must prove compliance with his or her obligations or the existence of a justified cause for his or her non-compliance that exempts him or her from liability.
II. Damages and lost profits
The breach of contract generates the obligation of the breaching party to pay its counterparty the damages and lost profits actually caused in connection thereto.
Civil legislation defines ‘damage’ as the loss or impairment suffered in one’s patrimony because of the obligation’s lack of fulfilment, and ‘lost profits’ as the deprivation of any legal future earnings that would have been obtained had the obligation been fulfilled.
III. Constitutive elements of contractual liability
Mexican doctrine considers that, to demonstrate the constitutive elements of contractual responsibility, it is necessary to prove:
1. The existence of a contractual obligation;
2. The breach of the obligation; and
3. That the caused damage is the direct and immediate consequence of the breach.
These elements may be proved through any of the evidential means provided by law – private or public documents, confessions, testimonies, expert evidence, legal presumptions or presumptions of fact, etc.
Mexican law grants the affected party the possibility to claim damages and lost profits either in a determined way (i.e., claiming a specific amount as compensation) or in an indeterminate way (i.e., where the quantum of compensation will be subject to special ancillary proceedings during the enforcement of judgment stage).
IV. Exemptions for contractual breach
Civil legislation establishes certain rules according to which a party may be released from its contractual obligations without generating contractual responsibility. Such is the case of acts of God (fortuitous case or force majeure).
Defences to enforcement
One of the most common methods to avoid enforcement of contractual obligations is through defences related to missing essential or validity elements of a contract. For instance, the purpose of a contract cannot violate the law or public policy; otherwise, the contract is unenforceable because of its illegal object.
It is possible to avoid enforcement of a contractual obligation under the frustration of purpose theory. Mexican law defines the purpose of a contract as the main reason a party enters into it; thus, frustration of purpose occurs when an unforeseen event prevents the purpose from being achieved.
Nonetheless, Mexican courts often require the parties’ main purpose for entering a contract to be declared in the contract itself or the party seeking this defence to provide irrefutable evidence of the purpose, which may be difficult to prove.
Although common law countries have adopted the doctrine of impracticability, Mexico has not yet fully adopted it. Historically, Mexican courts have determined that the country’s Federal Civil Code only adopts the pacta sunt servanda principle, which, as the courts have interpreted, means that contracts must be sustained, even when there is an occurrence that makes the performance of the contract extremely difficult or burdensome for one of the parties.
As a result of the 2011 amendment to Article 1 of the Constitution, a new legal interpretation model was introduced into Mexico’s legal system. It changed from a strictly formal and rigorist legal system to a deontological one in which the most important goal is the effective protection of human rights and individuals.
Consequently, human rights have become the centrepiece of the Mexican legal system. For example, the Supreme Court of Justice has interpreted that the interest rate established by the parties in a credit agreement is limited by Article 21.3 of the American Convention on Human Rights that prohibits usury. Based on those precedents, defences of human rights violations are becoming more common in Mexico in civil and commercial contractual controversies.
Regarding statutes of limitations, the Commerce Law provides different periods depending on the subject matter and type of claim, from one to 10 years. Under Article 1048 of the Commerce Code, when no particular statute of limitations period is established by law, the general period of 10 years will apply.
Mercantile law does not include a statute of limitations period for claims related to missing essential or validity elements of a contract or contractual breaches or claims; instead, those statute of limitations periods are established in the Federal Civil Code. For instance, the period for claims regarding a contract entered into under duress is six months from the date the duress stopped.
Source: Martínez Algaba de Haro y Curiel
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