FREQUENTLY ASKED QUESTIONS

(For selling goods into Mexico and the recovery of debt)

1. What is the best way of securing payment when selling goods into Mexico on open account credit terms, without a formal written contract?

2. What other formal means of securing payments are available in Mexico?

3. Under what situations would it be wiser to choose Mexican Law as governing law in my contracts for the sale of goods into Mexico?

4. What exactly is the Convention on Contracts for the International Sale of Goods (CISG or the Vienna Convention) and how does it affect my contracts?

5. Will the Vienna Convention govern all aspects of the transaction and every detail in the relationship between buyer and seller, or is there any aspect of domestic law that should be considered?

6. Under what circumstances would it be more convenient to rely on Mexican courts for the direct recovery of debt, choosing therefore and including a Mexican venue provision in our contract (to be subject to the jurisdiction of Mexican courts)?

7. Will consumer protection laws govern the sale of goods to a Mexican party even if I am outside Mexico?

8. What other type of regulations or procedures should be considered upon importing goods into Mexico?

9. What are the requirements for the international assignment of receivables from a debtor in Mexico (either an international assignment or an international account receivable)?

10. How can I appoint a representative to act on behalf of my company in Mexico?

11. What legal recourse do I have in Mexico if buyer defaults payment?

12. According to Mexico’s basic rules on jurisdiction, when will it be considered that a foreign Judge has proper jurisdiction to decide upon a claim, such as to consider a following resolution as valid and enforceable in Mexico?

13. What is the general process of commercial court litigation in Mexico (overview)?

14. What judicial prejudgment remedies are available to creditors in Mexico?

15. How does Mexican law regulates a fraudulent conveyance of assets?

16. How can I enforce a foreign judgment in Mexico?

17. What is an Amparo?

18. Can I recover even if I don’t have a signed contract?

19. Does it make a difference how long the account has been overdue?

20. I’ve heard it’s easier to collect when there are checks, promissory notes or bills of exchange signed, why is that?

21. Can I secure an international transaction with checks, promissory notes and bills of exchange according to my country’s laws, or do I need to comply with different legislation from Mexico?

22. How much time do I have to enforce checks, promissory notes and bills of exchange in court?

23. What will it cost me to collect through Court?

24. How long will it take me to collect through court, and how efficient is the Mexican Judicial System as to this date?

25. What places in Mexico does your Firm cover collection matters?

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1. What is the best way of securing payment when selling goods into Mexico on open credit account terms, without a formal written contract?

Although a written agreement is not necessary in Mexico to consider a commercial transaction or a related contract as valid and enforceable in court, documentary evidence IS going to help you bring a stronger case upon collection, and maybe even relieve you from having to bring witnesses into trial, which makes for shorter proceedings.

That is why we have to support the sale of goods with a formal written contract or at least try to sustain every detail about our transaction with the use of relevant documents; details such as: 1) the debtor’s identity; 2) terms of sale; and 3) fulfillment of the parties’ obligations. Such conditions can be achieved by implementing the following:

· Credit application. This represents the most essential document to support our claim. It will be important to include —among other things— terms of sale, considering CISG as well as Mexican law (in some cases); and debtor’s identity, including authorized personnel to make purchase orders, and personal guarantees by key shareholders. An original signed copy of such application must be requested at some point during the initial stages of the transaction.

· Purchase orders (PO’s). Equally important is to have documents that prove that certain goods where requested (thoroughly specified), that buyer promised to pay on certain terms, and to received such goods on a specific location. Such PO’s are only to be considered if submitted and signed by appropriate personnel (as authorized in the credit application), and must be requested by fax or mail. (The carrier can also help request the original signed PO).

· Receipt of goods sold. This requirement is fulfilled by handling and requesting a proper bill of lading by the carrier. It is important to instruct the carrier to specify the date of delivery, and to obtain the full name of the person receiving the goods, besides his signature. If there is no carrier in the picture because buyer is taking care of freight or transportation, a receipt for such goods must still be considered.

· Promissory notes. It is a good idea to have debtors sign promissory notes (pagarés) for past due accounts. This helps by limiting defensive arguments and excuses a debtor may have in responding to a claim in court. This also enables a creditor to obtain an immediate writ of attachment upon filing his complaint. (Please contact us and request the free brochure “Simple Steps to Drawing Up a Pagaré that will be Enforceable in Mexico”. It includes an example form).

2. What other formal means of securing payments are available in Mexico?

During the last couple of years Mexican Commercial Laws have evolved in considerable fashion to the extent of giving us useful tools for securing payment in financed sales. During this section we will point out only the few devices that we believe are more common, and those that will more likely help during the sale of goods:

· Commercial Pledge. The pledge is a device that helps secure a loan by creating a security interest on debtor’s personal or “movable” property (such as goods recently acquired out of an international sale). For years, Mexican law had followed traditional Roman Law principals which required that goods securing a loan be delivered to the lender (seller). Not anymore. Recent amendments to the Negotiable Instruments and Credit Transactions Law on May, 2000 have made it possible for lenders to retain an interest in the pledged property while debtors retain possession. Another main feature of this new pledge is the possibility of creating a security interest in present and future collateral, as well as to secure present and future obligations. (Future collateral include after-acquired property, proceeds, account receivables, etc.)

· Mortgage. The mortgage agreement allows a creditor to establish a security interest in the debtor’s real property (real estate) to secure payment of any loan with priority over other creditors. Upon default of the obligation secured, the creditor has the right to request the foreclosure of the mortgage before a judicial court and pay indebtedness with the proceeds derived from the foreclosure.

· Conditional Sale. Through this device seller reserves title to the goods sold until buyer completes full payment. This method has proven very effective when the goods sold can be identified and can also be recorder in the City’s Public Registry of Commerce (in buyer’s place of business). Proper recording allows a seller immediate repossession of the goods sold should buyer default payment, even in bankruptcy or strike proceedings.

· Bond and Guaranty. Through this mechanism the issuer of a bond or guarantee undertakes to be responsible for the fulfillment of a contractual obligation in the event of a default by the buyer. Bonds can be granted by individuals, but are usually furnished by bonding companies. On the other hand, a guarantee is often granted by either individuals or companies in general, and is also known as a personal guarantee, or an unconditional guarantee endorsement. The grantor of this last device is jointly and severally liable for the debt, and can be sued directly regardless of the action against the original debtor being exhausted or not (it so happens with bonds).

· Letter of Credit. Through a letter of credit the issuing bank commits up front to pay on behalf of buyer a specified amount of money to the seller when presented with a specified set of documents: invoices, packing list, bills of lading, etc. Although this is the safest way of securing payment, it is also the more difficult to get since buyer will have to secure a line of credit from the issuing bank. A letter of credit issued by a Mexican bank and dishonored can usually be enforced through summary proceedings.

3. Under what situations would it be wiser to choose Mexican Law as governing law in my contracts for the sale of goods into Mexico?

If you are not including an arbitration clause in your contract, and you are also not considering to subject claims or controversies arising out of the commercial relationship to a foreign court (your country’s courts for example), you should seriously consider including Mexican Law as governing law for your contract.

Because foreign law is not mandatory in Mexico and not recognized within our system and institutions, a plaintiff whose cause of action is based on foreign law is going to have to prove to the court in detailed manner what does the particular and applicable foreign law provides and which are the particular provisions deemed relevant to the controversy. That creates the unnecessary task to perfectly cite in the plaintiff’s complaint all the provisions pertinent to your case, and later on prove them in court through the use of expert witnesses or public reports from the foreign country officials (with the help of letters rogatory). The lack of these formalities will not only hurt you against a well-advised debtor, but also in an uncontested lawsuit.

Another thing to consider when choosing Mexican Law as governing law for your sales transaction is the different scenario that such regulation will create for both buyer and seller with respect to their contractual and non-contractual liability, as well as the legal remedies provided for under our system. For instance, punitive damages are not recognized in Mexico’s legislation and therefore never awarded.

With respect to torts law, most Civil Codes in Mexico provide a maximum amount cap an injured person can receive for actual damages sustained, generally far less than what they would be in the United States.

Lastly, while Mexican courts will provide for a specific performance remedy under all situations in civil matters, it is doubtful whether such rule is to apply in commercial cases. This posses some treat to buyers in situations where seller fails to deliver goods, since there will be much uncertainty as to the remedies available. As to the parties’ rights and duties, the situation will likely remain the same since Mexico is part to the Vienna Convention on Contracts for the International Sale of Goods (CISG), making such international law binding under most circumstances unless specifically excluded.

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4. What exactly is the Convention on Contracts for the International Sale of Goods (CISG or the Vienna Convention) and how does it affect my contracts?
 
The Vienna Convention is an International Treaty to which more than 60 Countries are part (just to mention a few: USA, Canada, Mexico, Australia, Argentina, most western European countries except England, etc.), and contains international set of rules designed to provide clarity to international sales contracts by regulating them in almost every aspect including: parties’ rights and obligations, parties’ liabilities, contract formation, remedies available against non-compliance, etc.
 
The CISG will govern every sales contract in which buyer and seller are located in different Countries which are signatories to the CISG, unless a specific provision in said contract excludes the application of the Convention. The CISG will not apply however in the following cases:

 · International consumer sales (sales bought for personal, family or household use);
 · Specific kind of sales like auctions;
 · Sales regarding specific kind of goods like stocks, electricity, ships, hovercraft, and aircraft;
 · Generally, distribution agreements, because they govern “future” sales of goods;
 · Sale of goods where the buyer supplies a substantial part of materials needed for production.
 

5. Will the Vienna Convention govern all aspects of the transaction and every detail in the relationship between buyer and seller, or is there any aspect where domestic law (law of either the seller or the buyer’s country) comes in and should be considered?
 
There are very important aspects of an international sales contract that are not regulated by the CISG, and one must rely on domestic law. These include:

· CISG is not concerned with the VALIDITY of the contract, its provisions, or any usage. This means that in order to examine the capacity of the parties who entered into a contract, or to determine whether a party was induced into signing a contract by fraud, domestic law is going to be looked upon by a court if a controversy should arise.
 
· CISG excludes questions of effect on PROPERTY. As such, a third party who claims to have an interest in the goods that are sold, is going to have to rely in domestic law to find relief. Buyer is also going to have to look upon that area of domestic law which governs his situation in regard to that third party who could claim a “better” right in the goods sold.
 
· The CISG does not apply to the LIABILITY of the seller for death or personal injury caused by the goods to any person. A very serious question is indeed the case of torts law and liability. Like we said earlier (2), torts law in Mexico differs quite a lot than that from common law jurisdictions, and therefore should be considered.

6. Under what circumstances would it be more convenient to rely on Mexican courts for the direct recovery of debt, choosing therefore and including a Mexican venue provision in our contract (to be subject to the jurisdiction of Mexican courts)?
 
Much of this decision has to do with practical reasons, that is, when will a Mexican court provide for faster, less expensive and still safe proceedings for your recovery of debt.
 
Generally, a non-complex contested commercial case will take approximately one year to be resolved in a Mexican court, without adding an appeal process and any constitutional injunction proceedings, which could ad up another 9 to 12 months. That time could very well double in a complex commercial dispute or a collection case involving a large amount of money.
 
It is probably only in these two last scenarios where you could consider choosing a foreign court or arbitration for resolving your disputes instead of a Mexican court, but not in the first mentioned, because of cost-effective reasons.
 
Just to get an idea, the following costs should be considered when thinking about bringing a claim to a foreign court or an arbitration tribunal:

· Arbitration costs. According to the International Chamber of Commerce (ICC), costs add up to $5,875 dollars for a $25,000 dollars case, and $13,000 dollars for a $100,000 dollars case, for arbitrators’ fees (one, and not including his expenses) and administrative expenses. In Mexico, the Arbitration Center of Mexico (CAM) charges around $7,700 dollars for arbitrators fees (also one, and not including expenses) and administrative expenses for any lawsuit of up to $100,000 dollars.
 
 · Counsel’s fees for arbitration. Lawyers involved in arbitration generally will charge an hourly fee for their services, and not a fixed fee or a contingency fee.
 
 · Costs for service of process. If you are going to bring a case in a foreign court and your debtor is located in Mexico, you will still have to comply in strict manner with Mexican procedure rules for proper service of process in Mexico. That means you will have to go through a Mexican court to serve the defendant properly once a formal request has been done through a letter rogatory from the foreign court. Failure to do this will invalidate your judgment and will make it unenforceable. This service will require the help of counsel in Mexico, who will generally charge an hourly fee. (It is also recommended to at least substantially comply with Mexican procedure rules for the service of process during arbitration. Failure to do this could allow a defendant to argue infringement of his fundamental rights provided under the Mexican Constitution).
 
 · Costs for enforcing a judgment. Again, you are going to need the help of counsel in Mexico to enforce a judgment. They can charge either hourly fees or based on contingency.

Adding up all these costs (without considering pre-judgment remedies), you would realize that a recovery for a modest amount of money may not result in a profitable business after all if filing suit outside of Mexico or commencing arbitration.

For this reason, we believe that collection cases worth $100,000.00 dollars or less are best pursued directly through a Mexican court.

You should be confident that Mexican courts are each day more and more reliable and efficient, especially for these kinds of cases. Retaining a counsel in Mexico for collection will waive all the above-mentioned costs, since they usually charge a contingency fee.

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7. Will consumer protection laws govern the sale of goods to a Mexican party even if I am outside Mexico?

First of all, consumer protection laws govern the sale of goods only when buyer is recognized by the Consumer Protection Federal Law (CPFL) as a “Consumer”. For these purposes, a Consumer is either a company or individual who buys such goods for a personal use, that is, as a final user of said products. A buyer who is buying goods for a production or manufacturing process or for commercial purposes is not a Consumer, and therefore such sale is not going to be affected by consumer protection laws.

Secondly, because the CPFL’s main purpose is to defend consumers’ rights in Mexico, the CPFL will govern your sale of goods to a Mexican Consumer. Under such scenario, the CPFL provides regulation through articles 53 to 55 for sales made through television, telephone, mail service or any other means which do not allow for direct contact with Consumer, and through article 76 bis, which specifically regulates sales made through internet. (For closer look into these regulations please contact us for a free brochure on “Consumer Protection Regulations for E-Commerce in Mexico, and Tips for Avoiding Falling within the Scope”).

8. What other type of regulations or procedures should be considered upon importing goods into Mexico?

There are several regulations that should be complied with in order to avoid problems during the import process, namely:

a) NOMS. These are official technical standards issued by the Ministry of Economy describing specifications on products sold in Mexico.

b) LABELS. All imported goods should include labels that allow identifying its general information as required by the Ministry of Economy.

c) HEALTH. There are several health regulations that control and restrict the import of certain products for sanitary measures.

Besides these regulations, you should keep in mind that only those who have obtained an import permit from the Ministry of Economy are allowed to import products into Mexico. That means that in order to import any product, you should establish presence in Mexico through a legal entity and obtain an import permit (it is possible through a distributor).

Generally it is the buyer who takes care of the import process, either by him or through the use of a commercial house (comercializadora). In either case, you should make sure that the legal commercial relationship is kept with the buyer and not any third person.

Once this is settled, you will need an import declaration (pedimento) completed by a Mexican customs broker or forwarding agent, along with the commercial invoice, packing list and the bill of lading. If the goods are imported form a country with which Mexico has a trade agreement, you should also include the relevant certificate of origin.

9. What are the requirements for the international assignment of receivables from a debtor in Mexico (either an international assignment or an international account receivable)?

Notification of an assignment or a payment instruction to debtor will be effective every time debtor acknowledges such notice either by express or implied means such as complying with the new terms of payment. However, whenever debtor does not acknowledge such notice, does not agree with new payment terms to the assignee or just defaults payment with no cause, a formal notification will have to be done in strict compliance of Mexico’s commercial laws.

Article 390 of Mexico’s Commercial Code provides that the assignment of receivables is to be done with proper notification of debtor before two witnesses. However, it is a common practice in Mexico to give notice to debtor with the help of a Notary Public instead of the two required witnesses. This is what we call a “formal notification”, and there is much more to it.

In order for the notice to be valid, it has to be done through a legally appointed representative of the creditor or assignor. That means that a power of attorney will have to be furnished to the creditor’s representative in Mexico, and such power of attorney will have to strictly comply with Mexican laws on issuance of powers of attorney. This document will also have to be furnished to the debtor at the time of notice.

Furthermore, notice will have to be provided in Spanish language or proper translation of documents will have to be provided at such time. It is also highly recommended that all documents pertaining to the assignment are furnished to debtor, making sure he is well informed of such operation, and that the rights of the assignee are justified. This step should be taken to avoid future problems assignee may have when trying to collect such receivables in court.

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10. How can I appoint a representative to act on behalf of my company in Mexico?

If your company intends to pursue legal actions in Mexico, or is either entering into formal contracts within the Mexican territory, a representative must be legally appointed to act on its behalf through a formal power of attorney.

Powers of attorney to be utilized in Mexico must be carefully drafted, and must also conform with either of the following International Treaties:

· The Washington Protocol on the Uniformity of Powers of Attorney Which are to be Utilized Abroad of 1940; or

· The Panama Inter-American Convention on the Legal Regime of Powers of Attorney to be Used Abroad of 1975.

Both these treaties provide for a handful of legal requirements and conditions that will have to be satisfied and strictly complied with in order to have full binding effects in Mexico. Some of the basic requirements include:

· Certification and attests by a Notary Public (that the company granting power of attorney was duly formed and is legally existing; that the individual acting on behalf of the company has proper representation and authority to delegate special and general powers of attorney; etc.);

· Purpose and extent of the power of attorney (it must determined in precise fashion, e.g., for lawsuits and collections, to buy and sell goods, to manage the company’s business, etc.)

· Language (power of attorney is to be executed in Spanish, or provide proper translation of all documents pertaining to the same);

· Authentication and legalization of power of attorney (Notary’s signature and certification must be asserted by a Government official as valid, and an Apostille for such official certification must be obtained);

· Filing (it is recommended that general powers of attorney are filed in the Public Registry of Commerce, in such City or State where the power of attorney is to be used).

These are just some of the main requirements provided under the International Treaties. You should therefore seek further legal advice from counsel in Mexico to make sure that every condition and all requirements are met.

11. What legal recourse do I have in Mexico if buyer defaults payment?

There are several options available to pursue a collection in court, each according to a different strategy and dependent upon how the commercial transaction was conducted and documented.

You can either file a complaint for an ordinary proceeding or for an executive proceeding. If an executive proceeding is not available due to its strict nature and constraints, there is a preliminary proceeding available that can further enable the executive proceeding. There is also the possibility of obtaining a prejudgment judicial remedy but that will be discuss in a following question. For now, we will try to explain how these particular proceedings work:

· Ordinary proceedings. These proceedings accommodate for most of the cases where an international business transaction is disputed. This is mainly because they do not rely on a credit instrument or a special title document (título ejecutivo) and therefore, do not allow for immediate interim measures to secure proper execution of a final judgment unless, strict guidelines for prejudgment remedies are followed including the posting of a required bond. Some of the most important features of the ordinary proceedings include the fact that it’s a relatively longer proceeding, it allows you more time and opportunity to prepare and request the admission of evidence in court, and it also provides wider opportunities to counterclaim.

· Executive proceedings. Plaintiffs find more reliable and comfortable to sue with an executive action rather than through an ordinary proceeding. Reasons are plenty. First of all, the special title (título ejecutivo) on which the proceeding is based creates a presumption that the claim exists and that it’s legally valid, therefore, turning the burden of proof to the defendant. Secondly, the same title gives a preliminary certitude of the plaintiff’s claims, allowing therefore, an immediate ex parte prejudgment attachment order without placing bond. Thirdly, it is rather a summary proceeding in which evidence admission and proposals are limited to the initial stages through complaint and answer’s briefs. This makes for a shorter and faster proceeding in which a final resolution is usually going to be rendered in less time. The drawback to this proceeding is that is not always available to all creditors since they must account for a título ejecutivo, which can be a credit instrument, a judgment, or a judicial acknowledgment of debt —among other possibilities.

· Preliminary proceedings. The main purpose of a preliminary proceeding —within the collection process— is to obtain a judicial acknowledgment of debt that will enable an executive action instead of following an ordinary proceeding. It usually starts with a formal petition from creditor in which facts relating to the debt are stated and a subpoena or citation for debtor is requested. The court will setup a hearing date in which debtor will have to respond as to whether he owes the creditor or not. If debtor fails to show up at the time of the hearing, the Judge will consider the stated claim as legally acknowledged by debtor. The supporting documents to the acknowledged debt will constitute a título ejecutivo that can be enforceable through an executive proceeding.

12. According to Mexico’s basic rules on jurisdiction, when will it be considered that a foreign Judge has proper jurisdiction to decide upon a claim, such as to consider a following resolution as valid and enforceable in Mexico?

According to the Federal Code of Civil Procedure (FCCP) —which most States’ Codes have followed, proper venue will be recognized to a foreign court such as to enforce its judgments, when rules on jurisdiction taken into account are compatible with those requested for in Mexico. These are the following:

1) Forum selection clauses will be valid and enforceable if there is no actual obstacle or denial of justice, considering the circumstances involved and its relations among parties;
2) Forum selection clauses will not be valid when the right to select a forum works exclusively in favor of one of the parties;
3) If there is no forum selection clause, territorial jurisdiction is conferred to the court of either:

a) The place designated by the defendant to be notified or summoned for an action or requirement for contract enforcement;
b) The place where the fulfillment of the obligation in a contract was agreed to; and
c) The address or place of residence of the defendant.

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13. What is the general process of commercial litigation in Mexico (overview)?

The general process of commercial litigation is comprised of five main stages for both the executive (EP’s) proceedings and the ordinary proceedings (OP’s). The main difference in these two types of proceedings —as we mentioned before, is the shorter or longer periods of time available to parties for executing any and all procedural actions within a given proceeding. Some of the main features of each stage or phase are the following (considering a contested lawsuit):

1) Exhibition stage. The process of litigation is generally commenced by filing a formal complaint, and by proper service of process upon defendant, allowing him from 5 to 9 days to file a formal written answer. After the answer is filed, the plaintiff is given a 3-day period to reply to any argument made by the defendant, and 9 days to reply to any counterclaim that the defendant might sustain in an OP.

It is during this stage that an attachment order will be executed in EP’s, mainly during the service of process phase and without placing bond. The service of process itself is a very important act and almost considered a sacramental one. Service of process must be executed through an official court clerk, and most fully comply with local civil procedure rules.

2) Probatory stage. In Mexico, any piece of evidence that might support our cause of action (documents, witnesses, experts, etc.), must be first proposed to the court (asked for its admission) for its later rendering. Such proposal must be made in the same complaint and answer briefs, during EP’s, and once allowed they should be rendered within 15 days. During OP’s, parties must request for a 10 day period to file a petition proposing evidence, after which they will have 30 days to render all evidence in full, including having such evidence ready for the appointed hearing.

It is important to consider that in Mexico there is no pretrial discovery phase or proceedings, so a party commencing a lawsuit will need to have everything ready upon filing its claim: facts, proofs and supporting arguments. Also, the procedure itself is mainly conducted in written fashion. The nature, purpose and extension of the hearings are very different from the “hearings” or “trial” in common law jurisdictions.

3) Conclusion stage. After all evidence has been rendered and the probatory stage has ended, parties are given a 3-day period each to make allegations, which will again have to provide and filed through formal briefs. Unlike common law jurisdictions, there is no opportunity to give final oral statements that will be kept on record and later on considered. Following the allegation period, the Judge will have 15 days to decide its case on OP’s, and 8 days in EP’s.

4) Objection stage. After a judgment has been rendered, there is a 9-day period to file a petition for an appeal process —by which the proceedings or the judgment itself can be reviewed by a Court of Appeals (generally the State Superior Court). Each respondent in an appeal process is given a 3-day period to reply to arguments and allegations made in the appellate brief. Again, there are no oral arguments in this phase, and every allegation will have to be made in writing.

Within 3 days after the Court of Appeals has received the case file, it will decide whether to admit the appeal process or not. Following this period, it will have 15 days to enter a decision and issue a resolution either affirming or reversing the lower court’s decision. (Also important to consider is the possibility of a constitutional injunction proceeding, which can be filed against the Court of Appeals’ decision)

5) Executive stage. The final step in any proceeding will be executing the judgment. This will only be possible when the resolution is final (no appeal or amparo pending) and has the force of res judicata. During this phase there is generally a 5-day period granted to the defendant to voluntarily comply with the judgment. After such period has expired, an execution process will begin, starting with the seizure of defendant’s property and proper sale by judicial auction.

Generally, remedies are limited to very specific situations during the execution process, and there’s a chance that the defendant might seek amparo relief. Nevertheless, an amparo against execution is also limited and generally only permitted to the judicial auction itself.

14. What judicial prejudgment remedies are available to creditors in Mexico?

The Mexican Commercial Code provides for several precautionary measures, including a seizure of goods order (embargo or secuestro), which has both features of the attachment and garnishment orders. Such remedy —which we will call throughout this calling attachment order—, will therefore allow us to seize property in the control of the debtor or to levy on real property by an act of recording, and also to levy on the debtor’s tangible personal property in the possession of a third party or to levy on an intangible obligation owed to a debtor (including bank accounts).

Although the remedy is fairly available to all creditors, there are certain conditions and requirements that must be fully complied with, since the measure is granted as an ex parte relief.

Firstly, the petition for an attachment order as a precautionary measure has to be well supported by documents or witnesses showing that 1) petitioner has a prima facie underlying claim on the merits; and 2) there’s a potential risk that debtor will hide or transfer ownership rights on his real or personal property.

Secondly, once the attachment order is granted, the creditor must post a bond that will indemnify the debtor for damages if there’s any wrongful attachment, or if creditor fails to obtain judgment in the suit. The attachment will be then executed only after the bond is posted. (The amount required for the bond is left to the court’s discretion, and generally ranges from 10 to 20% of the claim).

Thirdly, since the attachment is a remedy ancillary to a suit, the same will be ineffective if there’s no suit filed within three days of the execution. Such term can be extended if the suit has to be filed or followed in any foreign jurisdiction.

15. How does Mexican law regulate a fraudulent conveyance of assets?

Like most countries that come from a Civil Law Tradition, Mexico’s laws within each State provide for remedies against fraudulent conveyance of assets through the actio pauliana.

The Federal Civil Code —which most States have followed, provides that any transaction made by debtor to harm or with prejudice of his creditor can be annulled, if there is evidence that proves: 1) that debtor’s insolvency resulted from such transaction, and 2) that the credit that originated the annulment request took place prior to the transaction. If the transaction was onerous, there has to be proof that the transaction was conducted in bad faith (fraud) by the parties involved. Creditor will be relieved from this burden of proof however, only in cases where debtor has sold goods (onerous transaction) following either a judgment or an attachment order (embargo) issued against him.

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16. How can I enforce a foreign judgment in Mexico?

The process involved for the recognition and enforcement of foreign judgments in Mexico —called “homologación”, is quite a rigorous one. It is a process in which both local and federal rules of procedure come into play, and one that goes hand in hand with another procedure on Letters Rogatory. According to article 571 of the Federal Code of Civil Procedure —which most States have followed, recognition and enforcement of a foreign judgment will take place only when the following conditions are met:

I. All formalities for Letters Rogatory are satisfied.

II. Judgment is not the result of an In Rem right.

III. The court rendering the judgment had proper jurisdiction to try the matter and to pass judgment on it.

IV. Service of process has been completed upon defendant in due legal form.

V. The judgment must be final and have the force of res judicata.

VI. There must be no case tried by a Mexican court which is a result of the same legal actions.

VII. The judgment must not be contrary to Mexican public policy (ordre public).

VIII. The judgment must fulfill all the formal requirements necessary to be deemed authentic.

The process for “homologación” requires that defendant is given a nine-day period to file an answer to the request for enforcement and to make allegations or to bring evidence in court. After the court has decided which evidence proposals are admitted, it will set up a hearing date for its reproduction. Once the evidence is fully rendered, the court will be ready to issue a judgment either granting the enforcement or denying it. An appeal process is also available to both parties, for which a five-day period is granted. (To take a closer look of requirements to enforce a foreign judgment including recommendations please contact us for a free brochure on “Avoiding Pitfalls with the Enforcement of a Foreign Judgment in Mexico”).

17. What is an Amparo?

In brief terms, an amparo is a constitutional injunction proceeding that can supersede any other type of proceeding or resolution. An action for amparo can be filed whenever a fundamental human right provided under our Federal Constitution is allegedly infringed by any government agency, including courts in general.

This is not a legal remedy within a certain civil, criminal or commercial case but instead; it’s a totally different and independent proceeding. Acts that give rise to an amparo action and proceedings are numerous, ranging from arrest warrants to final resolutions in civil and commercial cases, but these proceedings and cases are very technical in nature and thus, few amparo awards are granted. Only in those cases where there is clear and overpowering evidence that there was an infringement of fundamental rights will a district court grant an amparo award. This denial however, doesn’t stop the delay that such amparo proceedings bring along, although they tend to be faster and more efficient each day.

18. Can I recover even if I don’t have a signed contract?

Modern legislation in Mexico legally binds a party to a commercial transaction even when no written agreement has been executed, or no documentary evidence is accounted for. In support of such trend, the Vienna Convention provides that no international transaction will need to be executed in writing or that upon controversy written evidence will be required. If you can show that you honored your end of the bargain, we can usually enforce your rights to recover.

The offset to this situation is that witnesses will be most dependable for your cause of action in a contested lawsuit. Sometimes when there is enough documentary evidence to support your claim, a witness testimony will not be necessary, especially when debtor has recognized the exhibited documents as true and correct.

19. Does it make a difference how long the account has been overdue?

Yes. The statute of limitations in Mexico for enforcement of commercial transactions made within the country is one year for retail sales and ten years for wholesale. On international or cross-border sales, the statute of Limitations is four years according to Vienna Convention. For a criminal matter where a debtor committed fraud to obtain credit or merchandise, the Statute of Limitations is one year upon time of notice or acknowledgement of such crime, extendable to two years on special cross-border matters.

Besides legal constraints, collectability has much to do with how fast our actions are, and how fast the claim is pursued when compared with other creditors. The premise “first come, first served” is proven to be true when a debtor has hit financial crisis. Undercapitalized businesses are common in Mexico (maybe everywhere), so the few assets a company has to pay its debts with will be allocated to those who seize assets first, and execute upon them.

In addition, it is common to see how debtors in Mexico very easily transfer the company’s property (assets) to another business without a proper liquidation process. Although there is legal recourse against fraudulent conveyance of goods, this usually carries a longer and complex proceeding that prevents an immediate recovery. Therefore, it is highly recommended to act fast and execute upon debtor’s property even faster.

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20. I’ve heard it’s easier to collect when there are checks, promissory notes or bills of exchange signed, why is that?

It is indeed faster and probabilities to effectively collect are higher when there are promissory notes, checks, or bills of exchange duly signed. Such documents allow creditors for an immediate writ of attachment (resolution allowing seizure of debtor’s property), without placing bond. Any procedure based these “credit instruments” are generally shorter and the collection process is consequently faster.

Another big advantage of pursuing a collection through a credit instrument is that the defendant is not going to be allowed to bring in arguments relating to the commercial transaction or the parties’ rights or obligations derived from such business. They only allegations that will be relevant in such proceedings will be generally those relating to payment and validity of such credit instrument. These will be important factors since debtor will have very few defenses against a complaint, and there will practicably no need to bring in witnesses to support our claim.

21. Can I secure an international transaction with checks, promissory notes and bills of exchange according to my country’s laws, or do I need to comply with different legislation from Mexico?

Credit instruments were develop from ancient merchants since medieval times, and therefore are well known today and regulated in almost every country across the world generally in the same way. However, there will be certain requirements that the laws of each and every country are going to provide differently. Thus, it will be necessary to comply with the rules of such country where we are most likely to enforce it.

If you are going to secure a debt from Mexico through any credit instrument, you should make sure that the credit instrument duly complies with the regulations and requirements provided under the Negotiable Instruments and Credit Transactions Law. Failure to comply with these requirements is going to invalidate your credit instrument and will have no binding effect whatsoever. For instance, the promissory note must bear on the front the word “pagaré” for it to be consider a lawful promissory note and thus, is can be enforceable in court.

If you need assistance on drafting a credit instrument to secure a debt in Mexico, we can help you review your documents free of charge to see if they do comply with Mexico’s legislation on credit instruments. Please feel free to contact us at your convenience. You can also reach us to request the free brochure “Simple Steps to Drawing Up a Pagaré that will be Enforceable in Mexico”.

22. How much time do I have to enforce checks, promissory notes and bills of exchange in court?

The Statute of Limitations in Mexico for enforcing checks is six months after your debtor’s bank rejects them for insufficiency of funds (considering that such checks were presented within the legal period of up to three months when the drawer is in Mexico and the drawee out of the country); one month when both parts are within the country but in different cities; and fifteen days on operations made locally.

For promissory notes and bills of exchange the Statute of Limitations is generally three years after the account is overdue, and four years under the same conditions for international promissory notes and bills of exchange executed in accordance to the United Nations Convention on International Promissory Notes and International Bills of Exchange.

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23. What will it cost me to collect through Court?

Our firm will pass along certain court related expenses that will be needed to file a complaint and to secure all expenses that are likely to generate throughout proceedings. These expenses relate firstly to obtaining and executing an attachment order (including all tasks necessary for proper seizure of debtor’s property); and secondly, to preparing all documentation and evidence in general that needs to be rendered in court.

Other considerable expenses include traveling to other nearby cities’ courts of appeals and district courts in case of parallel proceedings, as well as office expenses in regard to your case. All of the expenses made on your behalf will be reflected in a detailed monthly statement that will be provided according to a previous services agreement that will be executed upon litigation.

Based on the terms and conditions for collection handled by our firm (posted on our web site), we will not charge initial non-contingency fees —such as suit fees. Essentially the financial risk goes to us. If we don’t recover, we don’t get paid.

24. How long will it take me to collect through court, and how efficient is the Mexican Judicial System as to this date?

Scholars and legal practitioners throughout the country have generally agreed that a non-complex contested commercial case will take approximately one year to be resolved, without adding any appeal process or constitutional injunction proceeding which could ad up another 9 to 12 months. That time could very well double in a complex commercial dispute or a collection case involving a large amount of money.

The time pointed out for non-complex cases could also be slightly increased in certain jurisdictions where the Judicial System has been rated below the average performance throughout the country. In this regard, the National Banker’s Association of Mexico prepared a study which aimed at ranking the Judicial Authorities of all 31 Mexican States (published in the national financial newspaper “El Financiero”, April 15, 2002), based on 1) professionalism, 2) quick outcomes, 3) staffing resources, and 4) quality of actual enforcement action. The study came out as follows:

25. What places in Mexico does your Firm cover collection matters?

Although our firm is based in Tijuana, Baja California, Mexico, we cover the entire country.

Our firm has cast an excellent network of affiliated local attorneys in major cities of Mexico (see our section on "places we cover" for a full list of cities) who help us file complaints and oversee the litigation process and progress of each case on a day to day basis. Still, HMH keeps the litigation strategy and responsibility.

One of the main advantages of our federal system in Mexico is that it allows a duly licensed lawyer to practice in any State within Mexico, without any need to be authorized by each State in separate fashion. This allows us to reach into other States and better represent our clients with their cases throughout the country. We want to make our clients feel confident that their accounts will be mainly handled by the very team that they placed their trust on: HMH Legal.

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