Mexican Lawyers specializing on credit and debt collection services in Mexico.

DISCLAIMER: The information you obtain in this article is not, nor is it intended to be legal advice. Our Law Office [HMH Legal] will only provide legal advice after having entered into an attorney client relationship. It is imperative that any action you take be done on the advice of counsel, and not based solely upon this article.

Creditors [especially foreign creditors] are always skeptical about engaging in litigation in Mexico to collect their money from debtors. For many reasons they believe that engaging in litigation will only result in a loss of time, effort, and money, without any guarantee of a profitable result at the end.

The main reason for that is probably because the general scenario for suing in Mexico is based upon an ordinary type of proceeding that gives plenty of advantages to debtors [or defendants]. Under this scenario, the plaintiff (creditor) will basically have all the burden of proof on his part for proving the underlying claim, the case will follow a lengthy procedure that presents many appeal opportunities for defendants, and the creditor will not get an attachment order until a judgment is rendered and is considered final.[1]

To the creditor that means having to pay for filing fees, pay service fees throughout the case [a long one], look for thorough information and papers that are filed, present witnesses, give testimony [his agent], bring expert witnesses, get official reports, etc.; and the list will go on and on in the creditors mind. The risk in engaging in this venture is that they are not guaranteed that they will win the case, and worst yet, they are not guaranteed that they will be able to execute upon their debtor at the end.

The way to offset this risk is by filing suit through an executive proceeding. Under this scenario, it is the creditor the one with the advantages. His underlying claim is presumed valid and enforceable, and he gets an immediate attachment order upon filing his complaint. Better yet, here it is the debtor who has the burden of proving either that he has paid already, or that the claim is null or false.

The problem is that the executive proceeding is only available to creditors who have either secured their debt with a note (promissory note, check, or bill of exchange); have their contract included in a formal deed (through a Notary Public); or have a formal acknowledgment of debt from the debtor, made before a court. This last condition can be achieved with a preliminary proceeding.

The preliminary proceeding (medios preparatorios) has the objective of obtaining an acknowledgment of debt from the debtor in order to allow a creditor to file a formal complaint through an executive proceeding.

This is done by either summoning the debtor to the court to testify during a hearing as to whether he owes the creditor or not (which is the ideal way for us), or having a court clerk visit the debtor at his address and making a formal inquiry as to the origin and existence of the claimed debt.

If the debtor fails to show up at the hearing, the creditor automatically gets a resolution that allows him to file an executive proceeding. If the debtor does show up and recognizes the debt, it is the same situation. However, in case the debtor shows up and denies the debt or the allegations, he could be subject to criminal liability if false statements are made. The penalties giving false statements before a court are regulated by each State, but all of them are severe and include imprisonment.

This proceeding is made possible by filing a petition to the court [usually in the debtor’s jurisdiction] that includes a simple [or meticulous] statement of facts that gave rise to the underlying claim, and a copy of any receivables or contracts that the creditor wants the debtor to recognize (not necessary, but many times recommended).

Here there is no need to go throughout the whole formal case; there are no legal obligations in court (other than conducting with truth and good faith); there is no need to present formal evidence; and the fees and costs are minimal. It’s an easy four step process: 1) you get detailed facts; 2) you draft and file the petition [or your counsel does]; 3) you notify the debtor; and 4) you wait for the hearing date.

You have to keep in mind though, that the only person who can file the petition is a duly appointed legal representative of the creditor company, which is why a formal power of attorney for lawsuits and collections will be needed for the individual filing on behalf of the creditor.

Creditors who want to know how fierce a battle the debtor will put up once formally sued, or those who want to better asses the risk in litigation (and maybe lower it), should definitely file a petition for preliminary proceedings. This is also highly recommended for creditors who do not want to go into litigation. The investment of time, effort, and money is minimal, and the benefits are plenty.

Once filed, the petition for preliminary proceedings will automatically create 2 things:

1. It will immediately let your debtor know that you really mean business and that you will take all the necessary steps to get your money back. Only then is when many debtors get your attention.

2. It will put the debtor in a risky and vulnerable position since he will be testifying under oath. He will have two options:

a. Lie by denying the debt; being subject to criminal liability with great chances of going to jail (and believe me, criminal accusations put a lot more pressure than a civil complaint: nobody wants to have a criminal investigation behind his back)

b. Tell the truth by accepting the debt; putting himself on a vulnerable position by allowing his creditor an immediate attachment order (and believe me, he will know that the attorneys will be coming soon, that is why he will make a real effort to resolve the dispute soon)

While the above situations will put a debtor under heavy stress, a creditor will simply sit back and enjoy the show. As we said before, they will have to legal obligation in the proceedings, and there is no likelihood whatsoever of being countersued because they have not yet filed a formal complaint. In any case, the creditor will now under two scenarios:

1. BEST SCENARIO. The main consequence that will derive out of a preliminary proceeding is that the creditor will really get the debtor’s attention. That will definitely increase chances of getting paid out of court, or at least reaching a settlement agreement.

2. WORST SCENARIO. The worst thing that can happen here is that the debtor may still be reluctant to pay voluntarily. Despite this, the creditor has now two weapons:

a. If the debtor did acknowledge the debt, the creditor will have an advantage in litigation through an executive proceeding.

b. If the debtor denied the debt, the creditor will have the opportunity of filing a criminal accusation for false statements against the debtor and still file suit through an ordinary proceeding.

Although the requirements for filing for preliminary proceedings are fairly simple, a creditor should always provide its counsel with the best weapons. For instance, it is not necessary to provide copies of any unpaid receivables or contracts that support the underlying claim; nevertheless, it is far better to present them to court (along with translations) because that will create an opportunity to present them physically to the debtor at the hearing for recognition. Refuting such documents is a lot much riskier (for criminal liability purposes) than just denying facts.

Also, it is sufficient a simple statement of facts that just mentions the debt (I sold goods to the debtor worth X dollars, he was supposed to pay on X date, and he didn’t pay). However, you want to give as much information as possible so that the framing of the questions to be made to the debtor can go from very general to very specific. These are questions which answers will be very difficult to deny by the debtor, and will be very easy to prove by the creditor during a criminal investigation.

A creditor should never throw his money away that easy just because a debtor is tough to deal with. Even when he does not plan to file a formal suit because he does not like the troubles of dealing with courts, he should at least give himself a chance to file for preliminary proceedings. The investment of time, effort, and money is minimal, and the benefits are plenty. The worst that can happen is that he might get paid.

[1] There is always a way to get a pre-judgment attachment order even under this type of ordinary proceeding, but it takes another formal petition to the court, some witnesses [to prove the potential risk of the debtor leaving, closing down doors, or selling away his assets], as well as a requested deposit or bond, as payment guarantee for damages should the plaintiff not get a favorable judgment.

This material has been provided as free educational message by HMH Legal. We invite you to send us your comments or to call us for a free consultation. If you have any questions please call us at +52 (664) 685-1387, 685-9196. You can also email us at info@hmhlegal.com. If you would like further information about our firm or our educational handouts, please visit us at www.hmhlegal.com