Data

Date:: 12-04-2022
Country:: Mexico
Number:: 595/2022
Court:: Tercer Tribunal Colegiado en Materia Civil del Primer Circuito
Parties:: --

Keywords

LONG-TERM CONTRACTS - LEASE AGREEMENT - BETWEEN TWO COMMERCIAL COMPANIES - REFERNCE TO THE UNIDROIT PRINCIPLES TO INTERPRET APPLICABEL DOMESTIC LAW (MEXICAN LAW)

COURT AFFIRMING THAT UNIDROIT PRINCIPLES, ALTHOUGH NOT PART OF MEXICAN POSITIVE LAW, CAN BE VALIDLY USED AS A SOURCE OF INTERPRETATION IN DISPUTES WHERE EQUITY, FORESEEABILITY OF DAMAGE, AND CONTRACTUAL BALANCE ARE AT ISSUE.

PENALTY CLAUSE MANIFESTLY EXCESSIVE IN RELATION TO THE DAMAGE SUFFERED - REFERNCE TO ART. 7.4.8 UNIDRIT PRINCIPLES IN ORDER TO AFFIRM THE POWER OF THE JUDGE TO REDUCE IT TO A REASONABLE AMOUNT

Abstract

The dispute concerned a lease agreement between two commercial companies, the purpose of which was the use of a commercial premises for, among other uses, the sale of alcoholic beverages. Performance of the agreement depended on the landlord providing specific licenses, including a land use license and an extension to operate as a restaurant with alcohol sales. The tenant alleged that the landlord breached this obligation and filed a claim for termination of the contract, also seeking payment of damages agreed upon as a contractual penalty.

The landlord, for its part, denied breach of contract and maintained that the tenant was liable for attempting to modify the agreed-upon line of business. It also argued that the penalty clause invoked was excessive, disproportionate, and contrary to the principles of contractual equity.

During its review of the case proceedings, the court specifically addressed the issue of the legality and validity of the penalty clause. In this context, the court reffered to Article 7.4.8 of the UNIDROIT Principles on International Commercial Contracts as an auxiliary criterion for interpretation. This article establishes that if the contractual penalty is manifestly excessive in relation to the damage suffered, the judge may reduce it to a reasonable amount. Thus, the judges considered that these principles, although not part of Mexican positive law, can be validly used as a source of interpretation in disputes where equity, foreseeability of damage, and contractual balance are at issue.

The ruling emphasized that contractual penalties should not be presumed to be contrary to public order, morality, or fundamental rights, especially when freely agreed upon between business parties in a context of equality. However, it also held that they cannot be punitive or disproportionate in nature with respect to the principal obligation.

Based on these arguments, and taking into account the reciprocal breaches by both parties, the court declared the contract rescinded without liability for either party. Likewise, the court ruled that the automatic application of the agreed penalty clause was inappropriate, as no specific damage had been clearly proven that would justify its enforceability under the terms sought by the lessee.

Excerpts of interest:

Similarly, the principle of mitigation of damages by the creditor is also regulated in the Unidroit Principles. These principles are an organic compilation of the Lex Mercatoria, and according to Galgano, they are a general section on obligations and contracts. They are composed of rules that have originated from the generalization of principles from some state systems, in accordance with international trade practices, and other rules that are original, not derived from national systems, but that have also been adopted within international trade practices.

The rule of interest for our study is Article 7.4.8 on mitigation of damage, which states:
(1) The non-performing party is not liable for harm suffered by the aggrieved party to the extent that the harm could have been reduced by the latter party’s taking reasonable steps.
(2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the harm.

For this purpose, it should be noted that the Unidroit Principles were developed as a global unification tool and serve as a model of standards that parties can adopt when entering into contracts anywhere. They have the advantage of having rules that are familiar to contracting parties from various regions of the world, facilitating international exchange and serving as an important dissemination tool for the principle under study. Thus, from a brief study of comparative law, we can discover that there is a tendency to recognize a general duty to mitigate damage, whether enshrined in law or, although not expressly enshrined in law, recognized by jurisprudence and doctrine. The important thing is that the application of the rule is consistent with the purposes established by law for compensation for damages and that it is also consistent with the rest of the system.

English translation of the Spanish abstract written by Jorge Moreno Barreto for CISG Spain

Fulltext

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Source

Abstract and fulltext in Spanish:
- available at the University of Carlos III website, http://www.cisgspanish.com}}