Negotiation is essential for the commercial development of companies. However, in many cases, the agreements reached may grant significant advantages to one of the parties, potentially disadvantaging the counterpart, leading to the inclusion of Abusive Clauses in Commercial Contracts.
The guiding principle of contracts is good faith, which must be observed both in the drafting of their clauses and in their execution, in order to ensure adherence to the principle of Pacta Sunt Servanda. This principle establishes that contracts, once agreed upon, must be fulfilled according to the terms agreed upon, respecting the reasonable expectations and balance between the parties.
Autonomy of Will in Commerce
The Commercial Code provides merchants with the ability to negotiate as they see fit without the need for formalities or compliance with certain requirements. This principle has recently been regarded by the highest courts as part of the Human Right to Free Personal Development.
The provision on which the freedom of contracting companies is based in the Commercial Code is established in Article 78, which describes public order and social interest as limitations. These are complex concepts in their application due to their lack of descriptive clarity in legislation, though they are of utmost importance for the Rule of Law.
Since the enactment of the Commercial Code, this article has not been amended in any way, but it has been the subject of various recent rulings that have clarified its interpretation to identify Abusive Clauses. These include, for example, the nullification of clauses where: i) exploitation of one person by another is considered;; ii) the principle of equality between contracting parties is breached; and iii) fulfillment of the contract is left to the discretion of one of the contracting parties.
The Supreme Court of Justice of the Nation (SCJN) on Abusive Clauses in Commercial Contracts
In this regard, the Supreme Court of Justice of the Nation recently resolved a dispute arising from a supply contract between companies, establishing additional criteria for identifying Abusive Clauses in commercial contracts.
The dispute concerns an Early Termination Clause within a five-year Supply Contract, whereby one of the parties could terminate the contract if the price of the supplied goods was improved by another supplier, with the clause stating the following verbatim:
3. Term and Termination, the contract may be terminated in the following cases:
…
f) In the event that the rates charged by the supplier are not competitive with any rate offered to the Buyer by any party concerning the manufacturing of the Products.
In which case:
1) The Buyer shall inform the Supplier of any rates offered by a third party, so that the Supplier may confirm whether it is able to offer an equal or lower rate.
2) The Supplier shall inform the Buyer in writing within twenty-four hours following the date on which the Buyer notified it of the offer.
3) Should the Supplier fail to inform the Buyer of any determination in this regard within the specified period, it shall be understood that the Supplier is unable to offer an equal or lower rate and, consequently, the contract may be terminated.
The highest Court of the Mexican Republic considered two particular points: i) That the twenty-four-hour period established by the clause is shorter than the term established in the Federal Civil Code for offers, which is three days from the receipt of the offer; and ii) That the notification formalities are minimal to guarantee the Supplier’s rights.
SCJN Criterion
The criterion applied by the Supreme Court to determine whether it constitutes an Abusive Clause, so as not to leave validity and compliance to the discretion of one of the contracting parties, was the observance of a minimum set of rules provided in the legislation for its: i) Constitution, ii) Existence, iii) Legal Validity, and iv) Termination.
The Court held that, although the Clause was valid based on the contractual freedom of the parties, its application was not, since the concept of informing must be understood to mean that the Buyer was required to communicate all inherent elements of the offer to the Supplier, such as the price and quality of materials, so that the Supplier would have a real opportunity to match the price and quality.
Conclusion
In conclusion, the First Chamber ruled that in interpreting contractual freedom, also known as autonomy of will, in the commercial sphere, it is essential to uphold a basic principle of equity between the parties. This means that, although the parties have the freedom to agree upon terms that best serve their commercial interests, these terms should not grant one party a disproportionate or excessive advantage over the other. In other words, autonomy of will allows the parties to define the terms of their contractual relationship, but always within a framework where both are on equal footing, respecting each other’s rights and obligations.
Equity in commercial contracts seeks to prevent situations in which one party can impose terms that are overly burdensome or unfair to the other, taking advantage of its position of power or a favorable market situation. In this regard, judges must ensure that the agreed terms do not undermine the necessary balance between the contracting parties, as a contract must be fair and cannot be valid if the fulfillment of its terms depends solely on the discretion or will of one party.
Therefore, contractual freedom in the commercial sphere is not absolute but is limited by the principle of equity, which ensures that agreements reached between the parties are reasonable and do not result in one party abusing the other. This approach is particularly relevant when dealing with termination or early termination clauses, as in the case resolved by the First Chamber, where it was determined that a clause allowing one party to unilaterally terminate the contract for subjective or arbitrary reasons violated the principles of justice and contractual balance.
The resolution of the Supreme Court of Justice of the Nation is published 135 years after the Commercial Code came into effect; it would fall to the Legislative Branch to add limitations aimed at preventing Abusive Clauses in Commercial Contracts to foster fairer legislation among merchants.
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