Trade Finance

Last verified on Friday 20th October 2017

Mexico

Ángel Escalante Carpio
Escalante & Asociados 

    Bills of exchange

  1. 1.

    Does your country have specific statutes governing bills of exchange?

  2. In Mexico, bills of exchange are regulated by the General Law of Credit Instruments and Operations under the second chapter (from article 76 to article 149). Applied as supplemental legislation: the General Commerce Code, trade and banking practices, and the Federal Civil Code.

  3. 2.

    Do these laws follow the Geneva Convention providing a Uniform Law for Bills of Exchange and Promissory Notes of 1930 or the United Kingdom

  4. Since Mexico does not have a common law system, it is not a State Party of the Geneva Convention of 1930. However, the General Law of Credit Instruments and Operations reflects the fundamental principles of the Convention and it maintains similarities.

  5. 3.

    What are the fundamental elements of a bill of exchange that is freely negotiable and enforceable under the laws of your jurisdiction?

  6. The fundamental elements that a bill of exchange must contain, according to the General Law of Credit Instruments and Operations, in order to be freely negotiable and enforceable are:

    • the mention of being a bill of exchange, inserted in the text of the document;
    • the mention of place and day, month and year in which it is being subscribed;
    • the unconditional order to pay a certain sum of money;
    • the name of the drawee;
    • the place and time in which the payment will be performed;
    • the name of the payee; and
    • the signature of the drawer or of the person who subscribes to his request or in his name.
  7. 4.

    Under your country’s laws, can a bill of exchange include a governing law clause? Would a foreign governing law be recognised by a local court?

  8. Under Mexican laws a bill of exchange may include a governing law clause, such provision must be recognised by the local courts, since it will be valid and enforceable between private commercial parties.

    However, Mexican laws will be the default governing law of any legal document signed in Mexico. If the bill of exchange is executed before Mexican local courts, national rules on limitation and prescription periods will be applicable. 

    Mexico is a state party of the Inter-American Convention on Conflicts of Laws concerning bills of exchange, Promissory Notes and Invoices. This Convention, in its article 3 states that: “All obligations arising from a bill of exchange shall be governed by the law of the place where they are contracted.”

  9. 5.

    Do the laws of your jurisdiction recognise the concept of a “holder in due course” or a “bona fide purchaser”, free from all claims to it by any person and from all defences of any third party?

  10. Mexican laws do recognise the concept of a “holder in due course” and “bona fide purchaser”.

  11. 6.

    If so, what steps must be taken to qualify as a holder in due course or bona fide purchaser?

  12. There is only one step to qualify as a “holder in due course” or “bona fide purchaser”, consisting in a continuous and uninterrupted series of endorsements in the original document or in an attached document. Mexican Laws also recognise blank endorsements. 

    However, if the subscription or transmission of the bill of exchange must be registered, the absence of registration will be considered as a gross negligence and will not qualify as a “holder in due course” or “bona fide purchaser”.

  13. 7.

    Are any stamp taxes, duties, levies, imposts or similar charges payable in connection with a bill of exchange pursuant to the laws of your jurisdiction? Who is responsible for paying them?

  14. The bill of exchange per se does not impose any taxes, duties, levies or fees at the moment of its execution, performance or enforcement in Mexico.

    However, since the bill of exchange may be considered as a means of payment, it could trigger income tax or value added tax, as well as the obligation to withhold taxes, regarding the underlying claim or commercial contract.

  15. 8.

    Is a banking licence or any other type of approval, consent or filing required for an entity to purchase a bill of exchange in your jurisdiction? Does this depend on whether the purchaser is a foreign entity?

  16. There are no banking licences, or filing required to purchase, hold, endorse, trade or enforce a bill of exchange, just the acceptance of the aforementioned document. Mexican legislation makes no difference whether the purchaser is a foreign entity, a legal or natural person.

    Letters of credit

  17. 9.

    Does your jurisdiction have specific statutes governing letters of credit?

  18. In Mexico, letters of credit are regulated by the General Law of Credit Instruments and Operations under Chapter Four, Third Section (from article 311 to article 320), as well as the Law of Credit Institutions and the Banking Regulations.

  19. 10.

    Is the issuer’s obligation to pay independent of the applicant’s ability or willingness to reimburse the issuer and any commercial dispute between the applicant and the beneficiary of the letter of credit?

  20. The issuer’s obligation to pay is independent of the applicant's ability or willingness to reimburse the issuer and any commercial dispute between the applicant and the beneficiary of the letter of credit. In this regard, Mexico follows the principles of autonomy and independence.

    A valid letter of credit entails an obligation for the issuer to pay the beneficiary, regardless of any other consideration, in the strict terms of what has been agreed.

  21. 11.

    Must a beneficiary’s presentation to draw under a letter of credit comply strictly with the terms of the letter of credit for the issuer to be obliged to pay?

  22. The beneficiary’s presentation to draw under a letter of credit must comply strictly with its terms for the issuer to be obligated to pay. On this sense, following the principle of literalism, the issuer will only be obliged in the strict terms of what has been agreed.

  23. 12.

    Are issuers expected to disregard any non-documentary conditions in a letter of credit under the laws of your jurisdiction?

  24. Yes. Under Mexican law, the letters of credit will only produce the legal effects strictly according to its terms. The obligation to pay is deemed independent of any other consideration or condition not expressively established in the document.

  25. 13.

    Under the laws of your jurisdiction, must letters of credit have a set expiry date or can they be perpetual? Must letters of credit be available for a specific amount or can they be open-ended in terms of the issuer

  26. Subject to contrary agreement, the letters of credit will expire in six months from the day of its issuance. Also, if the letters of credit do not have a set expiry date, by default it will expire six months from the day of its issuance. Our jurisdiction does not allow perpetual letters of credit.

    In practice, it is normal for the letter of credit to expire once it is used or when it reaches the expiration date, but when they are established frequently to the same supplier and for the same merchandise it is administratively inconvenient to process a new one every time. Thus, its validity must be set automatically for specific periods and predetermined amounts. Besides, article 6 of the Uniform Customs and Practices for Documentary Credits, states that “the credit must indicate an expiration date for the presentation. An expiration date indicated to honour or bargain will be considered as a due date for the presentation.”

    According to Mexican legislation, the letters of credit must be set for a specific amount or various undetermined amount; however, in this last case there must be a precise limit established. On this basis, open-ended letters of credit are not allowed.

  27. 14.

    Are standby letters of credit prevalent in your jurisdiction? What about demand guarantees?

  28. Both, standby letter of credit and demand guarantees, are prevalent in Mexico and fully acceptable instruments.

  29. 15.

    Is the use of ISP98 as a set of governing rules for standby letters of credit common or are they generally construed in accordance with UCP600 or other rules?

  30. In Mexico, the issuing of letters of credit is based in both: (i) Uniform Customs and Practices – UCP 600, and (ii) the International Stand-By Practices, International Chamber of Commerce Publication No. 590 (ISP98).

  31. 16.

    Under the laws of your jurisdiction, can a confirming bank seek a remedy from the applicant if the issuing bank defaults on its reimbursement obligations?

  32. In general terms, under Mexican law the confirming bank can seek a remedy from the applicant if the issuing bank defaults on its reimbursement obligations, as long as the letter of credit complies with the requirements set forth in the local regulations.

  33. 17.

    Assuming the laws of your jurisdiction apply, are there any elements of letters of credit that cannot be varied by agreement or by provisions stated in a letter of credit?

  34. According to Mexican law the letters of credit must comply with the required elements to be enforceable: it must be in favour of a determined person, non-negotiable, contain a set expiry day, and a specific amount or limit. Any other element of a letter of credit can be varied by agreement between private commercial parties.

    In our jurisdiction, the banks monitor with extreme caution that the documents fully comply with all the terms and conditions expressly set out in the letter of credit and normally apply criteria based on standard international banking practice (ISBP) when reviewing them.

    Account receivable purchases

  35. 18.

    Is the concept of a ‘true sale’ recognised in your jurisdiction? What are the legal requirements for a sale of accounts receivable to be treated as a true sale?

  36. The concept of a “true sale” of account receivable is recognized in Mexico. The seller must respond of the existence and legitimacy of the account receivable. Normally it is executed by a transfer agreement and the debtor must be dully notified.

  37. 19.

    In your jurisdiction, is there a centralised register or record of purchased receivables that can be viewed by third parties?

  38. Yes, in general terms, the “Single Registry for Security Interests in Personal Property" as a section within the Public Registry of Commerce.

  39. 20.

    Under the laws of your jurisdiction, can a receivable be sold, assigned or pledged without the underlying account debtor’s consent if the commercial contract giving rise to the receivable does not prohibit it? If the consent of the underlying account debtor is required, what is the proper means of effecting such consent?

  40. Under Mexican laws, a receivable can be sold, assigned or pledged without the underlying account debtor’s consent, unless the commercial contract giving rise to the receivable prohibits it. The debtor must be dully notified of the transfer to be fully effective against him or her.

    Additionally, for the transfer to be fully effective against third parties, in most cases, the assignment must be executed before a notary public or public broker. For some types of collection rights there could be additional requirements such as registration before the Public Registries.

  41. 21.

    If the seller of the receivables becomes insolvent, could the accounts receivable that have been sold become part of the seller’s estate under the insolvency proceedings?

  42. In general terms, in case of a “true sale” the accounts receivable that have been sold cannot become part of the seller's estate under the insolvency proceedings.

  43. 22.

    If your country’s laws govern the underlying commercial contract giving rise to the receivable, may the seller enter into an accounts receivable purchase agreement that is governed by foreign law?  

  44. The seller may enter into an accounts receivable purchase agreement that is governed by foreign law, notwithstanding that the underlying commercial contract giving rise to the receivable is governed by Mexican laws.

  45. 23.

    Is a banking licence or any other type of approval, consent or filing required for an entity to purchase a receivable in your jurisdiction? Does this depend on whether the purchaser of the receivable is a foreign entity?

  46. As long as there is no collection of savings from the public, there are no banking licences, or any other type of approval, consent or filing required for an entity to purchase a receivable in Mexico. Mexican legislation makes no difference whether the purchaser is a foreign entity, a legal or natural person.

    Pre-export finance agreements

  47. 24.

    Is there any beneficial tax treatment in your jurisdiction for pre-export finance loans as compared to other types of loans?

  48. Currently, in Mexico, there is no beneficial tax treatment for pre-export finance loans as compared to other types of loans. However, there are some specific tax benefits for concrete operations of importation and exportation.

  49. 25.

    Regarding pledged property, what is the proper means for creating and perfecting or providing notice of a security interest to make it effective against, and to have priority over, third parties?

  50. The proper means for perfecting or providing notice of a security interest is to record it at the Public Registry of Commerce, and the local Public Property Registry, in case of real estate.

  51. 26.

    Is there any restriction on the ability to have a perfected and enforceable security interest over the same pledged property under the laws of your jurisdiction and the laws of a foreign jurisdiction simultaneously?

  52. There is no restriction for the ability to have a security interest over the same pledged property under Mexican laws and foreign laws.

  53. 27.

    Is there a centralised register or record of security interests in your jurisdiction? Does entry in the register put third parties on notice of the secured interest?

  54. Yes, the Public Registry of Commerce and the Public Property Registry.

  55. 28.

    Are any stamp taxes, duties, levies, imposts or other similar charges payable in connection with a pre-export finance agreement pursuant to the laws of your jurisdiction? Who is responsible for paying them?

  56. There is no stamp taxes, duties, levies, imposts or other similar charges payable in connection with a pre-export finance agreement pursuant to Mexican laws.

  57. 29.

    Is there any requirement that the signatures to a pre-export finance agreement or any related security agreements be notarised for the signatures or the agreements to be valid?

  58. For the transfer to be fully effective against third parties, in most cases, the assignment must be executed before a notary public or public broker. Additionally, for some types of collection rights there could be additional requirements such as registration before the Public Registries.

  59. 30.

    In your jurisdiction, is there any requirement that a pre-export finance agreement or related security agreements be translated into the local language and be registered with a government authority? Must translations be notarised?

  60. Any document that is intended to be enforced or that should be officially registered in Mexico must be translated into Spanish by a recognised translator and apostilled or legalised.

  61. 31.

    Is a banking licence or any other type of approval, consent or filing for an entity to engage in a pre-export financing in your jurisdiction? Does this depend on whether the proposed creditor in such transaction is a foreign entity?

  62. As long as there is no collection of savings from the public, there are no banking licences, or any other type of approval, consent or filing required for an entity to purchase a receivable in Mexico. Mexican legislation makes no difference whether the purchaser is a foreign entity, a legal or natural person.

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Questions

    Bills of exchange

  1. 1.

    Does your country have specific statutes governing bills of exchange?


  2. 2.

    Do these laws follow the Geneva Convention providing a Uniform Law for Bills of Exchange and Promissory Notes of 1930 or the United Kingdom

  3. 3.

    What are the fundamental elements of a bill of exchange that is freely negotiable and enforceable under the laws of your jurisdiction?


  4. 4.

    Under your country’s laws, can a bill of exchange include a governing law clause? Would a foreign governing law be recognised by a local court?


  5. 5.

    Do the laws of your jurisdiction recognise the concept of a “holder in due course” or a “bona fide purchaser”, free from all claims to it by any person and from all defences of any third party?


  6. 6.

    If so, what steps must be taken to qualify as a holder in due course or bona fide purchaser?


  7. 7.

    Are any stamp taxes, duties, levies, imposts or similar charges payable in connection with a bill of exchange pursuant to the laws of your jurisdiction? Who is responsible for paying them?


  8. 8.

    Is a banking licence or any other type of approval, consent or filing required for an entity to purchase a bill of exchange in your jurisdiction? Does this depend on whether the purchaser is a foreign entity?


  9. Letters of credit

  10. 9.

    Does your jurisdiction have specific statutes governing letters of credit?


  11. 10.

    Is the issuer’s obligation to pay independent of the applicant’s ability or willingness to reimburse the issuer and any commercial dispute between the applicant and the beneficiary of the letter of credit?


  12. 11.

    Must a beneficiary’s presentation to draw under a letter of credit comply strictly with the terms of the letter of credit for the issuer to be obliged to pay?


  13. 12.

    Are issuers expected to disregard any non-documentary conditions in a letter of credit under the laws of your jurisdiction?


  14. 13.

    Under the laws of your jurisdiction, must letters of credit have a set expiry date or can they be perpetual? Must letters of credit be available for a specific amount or can they be open-ended in terms of the issuer

  15. 14.

    Are standby letters of credit prevalent in your jurisdiction? What about demand guarantees?


  16. 15.

    Is the use of ISP98 as a set of governing rules for standby letters of credit common or are they generally construed in accordance with UCP600 or other rules?


  17. 16.

    Under the laws of your jurisdiction, can a confirming bank seek a remedy from the applicant if the issuing bank defaults on its reimbursement obligations?


  18. 17.

    Assuming the laws of your jurisdiction apply, are there any elements of letters of credit that cannot be varied by agreement or by provisions stated in a letter of credit?


  19. Account receivable purchases

  20. 18.

    Is the concept of a ‘true sale’ recognised in your jurisdiction? What are the legal requirements for a sale of accounts receivable to be treated as a true sale?


  21. 19.

    In your jurisdiction, is there a centralised register or record of purchased receivables that can be viewed by third parties?


  22. 20.

    Under the laws of your jurisdiction, can a receivable be sold, assigned or pledged without the underlying account debtor’s consent if the commercial contract giving rise to the receivable does not prohibit it? If the consent of the underlying account debtor is required, what is the proper means of effecting such consent?


  23. 21.

    If the seller of the receivables becomes insolvent, could the accounts receivable that have been sold become part of the seller’s estate under the insolvency proceedings?


  24. 22.

    If your country’s laws govern the underlying commercial contract giving rise to the receivable, may the seller enter into an accounts receivable purchase agreement that is governed by foreign law?  


  25. 23.

    Is a banking licence or any other type of approval, consent or filing required for an entity to purchase a receivable in your jurisdiction? Does this depend on whether the purchaser of the receivable is a foreign entity?


  26. Pre-export finance agreements

  27. 24.

    Is there any beneficial tax treatment in your jurisdiction for pre-export finance loans as compared to other types of loans?


  28. 25.

    Regarding pledged property, what is the proper means for creating and perfecting or providing notice of a security interest to make it effective against, and to have priority over, third parties?


  29. 26.

    Is there any restriction on the ability to have a perfected and enforceable security interest over the same pledged property under the laws of your jurisdiction and the laws of a foreign jurisdiction simultaneously?


  30. 27.

    Is there a centralised register or record of security interests in your jurisdiction? Does entry in the register put third parties on notice of the secured interest?

  31. 28.

    Are any stamp taxes, duties, levies, imposts or other similar charges payable in connection with a pre-export finance agreement pursuant to the laws of your jurisdiction? Who is responsible for paying them?


  32. 29.

    Is there any requirement that the signatures to a pre-export finance agreement or any related security agreements be notarised for the signatures or the agreements to be valid?


  33. 30.

    In your jurisdiction, is there any requirement that a pre-export finance agreement or related security agreements be translated into the local language and be registered with a government authority? Must translations be notarised?


  34. 31.

    Is a banking licence or any other type of approval, consent or filing for an entity to engage in a pre-export financing in your jurisdiction? Does this depend on whether the proposed creditor in such transaction is a foreign entity?


Other chapters in Trade Finance

  • Ecuador
    Fabara & Compañía (Quito)
  • Mexico
    Escalante & Asociados