Independent Guarantees and Standby Letters of Credit
Mexican Perspective
Mercantile legislation in Mexico is Federal, so that commercial laws are mandatory throughout every State and the Federal District. There is scarce legislation concerning documentary credits in general and none concerning stand by letters of credit specifically.
In the first place, we have to address the Ley General de Títulos y Operaciones de Crédito,[1] which refers in article 317[2] to documentary and confirmed credits (the only ones actually regulated).
Article 318[3] states that the beneficiary's right to demand payment of the undertaking may be transferred by the beneficiary. He may do so unilaterally, however, the beneficiary will keep any obligations he may have assumed in the original undertaking. It should be noted that this is a default rule, but the parties may always agree upon all matters related to the undertaking.[4]
According to article 319,[5] the guarantor-issuer is responsible to the principle-applicant in a way similar to the liability that results from a power of attorney, the same rule applies to acts of the confirmer. Again, this is a default rule but the parties may stipulate differently.
Finally, article 319[6] deals with the defenses that can be opposed by the guarantor issuer, should controversy arise with the beneficiary; in the first place, those that result from the terms of the undertaking, also, unless otherwise stipulated, those resulting from the relationship of the beneficiary and the applicant. None, however, resulting from the relationship of the applicant and the issuer.
We should now refer to the Ley de instituciones de crédito[7], that deals with documentary credits in article 71.[8]
The applicant must provide the issuer with enough funds to cover the undertaking, however, failure to do so will not affect in any way the beneficiary’s rights to collect when the undertaking is irrevocable.
Article 71 implies that the underrtaking may, in certain cases, be revocable. Our opinion is that it could only be revocable if this is stipulated, however, it may also be considered that it could be revocable if the contrary is not stipulated, so non- revocablility should always be stipulated. In any case, the applicant can never revoke it. The Ley general de títulos y operaciones de crédito refers separately to commercial letters of credit (as a different institution), however, possible application of article 314[9] should be considered.
The issuer can demand payment from the applicant using the undertaking contract as an executive title, this permits a preffered action for such collection that allows the plaintiff to freeze sufficient assets owned by the defendant to guarantee collection.
The article also refers to international usages, thus opening the possibility of complementing legislation that is otherwise insufficient.
Finally, it establishes the independence of the undertaking from the underlying contract and its operation.
As can be seen, it is important to stipulate all matters in the undertaking contract, because default rules are mostly lacking in the existing legislation. However, some legal situations should be considered:
The Ley general de títulos y operaciones de crédito, when referring separately to commercial letters of credit, in article 316 establishes, unless otherwise stipulated, an expiration date of six months from the issuing date[10].
According to the Código de Comercio[11] jurisdiction is as follows: 1) the chosen court or courts; 2) the place designated by the debtor to be judicially required to pay; 3) the place agreed upon in the contract for complimenting the obligation; 4) the place of residence of the debtor and; 3) the place where the contract was celebrated.
As to the determination of applicable law, unless otherwise stipulated, articles 12[12] and 13[13] of the Código Civil Federal[14] should be considered. As to international treaties signed and ratified by Mexico, they supersede all other legal provisions except the Mexican Constitution.[15]
Elías Mansur - Tawill
[1] General Law of Credit Titles and Operations.
[2] ARTICULO 317.- El crédito confirmado se otorga como obligación directa del acreditante hacia un tercero; debe constar por escrito y no podrá ser revocado por el que pidió el crédito.
ARTICLE 317. - The confirmed credit is granted as a direct obligation of the guarantor/issuer in favor of a third party (the beneficiary); it must be drawn in writing and can not be revoked by the applicant.
UN Draft Convention on Independent Guarantees and Stand-by Letters of Credit, articles 1 (2), 2, 7 and 8.
[3] ARTICULO 318.- Salvo pacto en contrario, el tercero a cuyo favor se abre el crédito, podrá transferirlo; pero quedará sujeto a todas las obligaciones que en el escrito de confirmación del crédito se hayan estipulado a su cargo.
ARTICLE 318. – Unless otherwise stipulated, the beneficiary, may transfer his rights; but will keep any obligations he may have assumed in the original confirmed credit document .
UN Draft Convention on Independent Guarantees and Stand-by Letters of Credit, article 9.
[4] Código de Comercio.- ARTÍCULO. 78. En las convenciones mercantiles cada uno se obliga en la manera y términos que aparezca que quiso obligarse, sin que la validez del acto comercial dependa de la observancia de formalidades ó requisitos determinados.
Commerce Code.- ARTICLE 78. In commercial agreements each party is obligated in the way and terms aparent, in such a way that the validity of the commercial act does not depend upon determined formalities or requirements.
[5] ARTICULO 319.- El acreditante es responsable hacia el que pidió el crédito, de acuerdo con las reglas del mandato. La misma responsabilidad tendrá, salvo pacto en contrario, por los actos de la persona que designe para que los sustituya en la ejecución de la operación.
ARTICLE 319 The issuer is liable to the applicant according to the rules of the power of attorney. The same liability will apply, unless otherwise stipulated, to acts performed by the confirmer.
UN Draft Convention on Independent Guarantees and Stand-by Letters of Credit, article 13
[6] ARTICULO 320.- El acreditante podrá oponer al tercero beneficiario las excepciones que nazcan del escrito de confirmación y, salvo lo que en el mismo escrito se estipule, las derivadas de las relaciones entre dicho tercero y el que pidió el crédito; pero en ningún caso podrá oponerle las que resulten de las relaciones entre este último y el propio acreditante.
ARTICLE 320.- The issuer can oppose, in a conflict with the beneficiary, all defenses resulting from the undertaking document and, unless otherwise stipulated, those that result from the relationship between the beneficiary and the applicant; in no case, however, can he oppose those resulting from the relationship between the beneficary and the issuer.
UN Draft Convention on Independent Guarantees and Stand-by Letters of Credit, articles 3, 12, 14, 16, 17 and 19.
[7] Law of Credit Institutions.
[8] ARTICULO 71.- La apertura de crédito comercial documentario obliga a la persona por cuenta de quien se abre el crédito, a hacer provisión de fondos a la institución que asume el pago, con antelación bastante. El incumplimiento de esta obligación no perjudicará los derechos del beneficiario en caso de crédito irrevocable. El contrato de apertura de crédito será título ejecutivo para exigir el cumplimiento de dicha obligación.
Salvo pacto en contrario y en los términos de los usos internacionales a este respecto, ni la institución pagadora, ni sus corresponsales, asumirán riesgo por la calidad, cantidad o peso de las mercancías, por la exactitud, autenticidad o valor legal de los documentos, por retrasos de correo o telégrafo, por fuerza mayor, por incumplimiento por sus corresponsales de las instrucciones transmitidas, ni por aceptar embarques parciales o por mayor cantidad de la estipulada en la apertura de crédito.
ARTICLE 71.- The undertaking of a documentary commercial credit constitutes an obligation for the applicant to provide beforehand sufficient funding to the issuer. Non compliance of this obligation should not be detrimental to the rights of the beneficiary when the credit is irrevocable. The undertaking contract will serve as executive title to seek fulfillment of this obligation.
Unless otherwise stipulated and in terms of international usages concerning the issue, nor the issuer, nor the confirmers should be liable for the quality, quantity, or weight of merchandises, nor for the accuracy or legal value of documents, nor for delays in post or telegraph, nor for force majeur or non compliance of corresponding agents or instructed parties, nor for the acceptance of partial amounts or those for a greater amount than stipulated.
UN Draft Convention on Independent Guarantees and Stand-by Letters of Credit, articles 3 and 4.
[9] ARTICULO 314.- El que expida una carta de crédito, salvo en el caso de que el tomador haya dejado el importe de la carta en su poder, lo haya afianzado o asegurado o sea su acreedor por ese importe, podrá anularla en cualquier tiempo, poniéndolo en conocimiento del tomador y de aquél a quien fuere dirigida.
ARTICLE 314 Whoever issues a letter of credit, except in those cases that the applicant has deposited its value with the issuer, has given bail or securities or is his debtor for that value, can cancel it, any time, notifying the applicant and the addressee.
[10] UN Draft Convention on Independent Guarantees and Stand-by Letters of Credit, article 11.
[11] Articles 1093, 1104, 1105, 1106 and 1107.
UN Draft Convention on Independent Guarantees and Stand-by Letters of Credit, articles 24, 24 bis and 25.
[12] ARTICULO 12.- Las leyes mexicanas rigen a todas las personas que se encuentren en la República, así como los actos y hechos ocurridos en su territorio o jurisdicción y aquéllos que se sometan a dichas leyes, salvo cuando éstas prevean la aplicación de un derecho extranjero y salvo, además, lo previsto en los tratados y convenciones de que México sea parte.
ARTICLE 12.- Mexican laws apply to all persons within the Republic, as well as to acts and events which take place within Mexican territory or under Mexican jurisdiction, including those persons who submit themselves thereto, unless the law provides for the application of a foreign law, or its otherwise provided by treaties or conventions to which Mexico is a signatory party.
[13] ARTICULO 13.- La determinación del derecho aplicable se hará conforme a las siguientes reglas:
I.- Las situaciones jurídicas válidamente creadas en las entidades de la República o en un Estado extranjero conforme a su derecho, deberán ser reconocidas;
II.- El estado y capacidad de las personas físicas se rige por el derecho del lugar de su domicilio;
III.- La constitución, régimen y extinción de los derechos reales sobre inmuebles, así como los contratos de arrendamiento y de uso temporal de tales bienes, y los bienes muebles, se regirán por el derecho del lugar de su ubicación, aunque sus titulares sean extranjeros;
IV.- La forma de los actos jurídicos se regirá por el derecho del lugar en que se celebren. Sin embargo, podrán sujetarse a las formas prescritas en este Código cuando el acto haya de tener efectos en el Distrito Federal o en la República tratándose de materia federal; y
V.- Salvo lo previsto en las fracciones anteriores, los efectos jurídicos de los actos y contratos se regirán por el derecho del lugar en donde deban ejecutarse, a menos de que las partes hubieran designado válidamente la aplicabilidad de otro derecho.
ARTICLE 13.- The choice of applicable law shall be made in accordance with the following rules:
I. The legal acts, adjudications and determinations, validly emanating from any entity of the Republic, or any foreign state in accordance to its laws, shall be recognized as valid.
II. The status and legal capacity of individual persons shall be governed by the laws of the place or their domicile.
III. The creation, type of tenure and termination of rights derived form real estate , as well as leasing agreements and rental contracts of realty, shall be governed by the laws of the place where they are situated, regardless of the foreign nationality of their holders or owners.
IV. The formalities required for juridical acts shall be determined by the laws of the place where they are performed. In the event such acts shall have effects in the Federal District or in the Republic and relate to Federal matters, they will also be valid if in compliance with the provisions of this Code.
V. Except as provided in the preceding paragraphs, the legal consequences of acts and contracts shall be governed by the laws of the place of their execution, unless the parties have validly designated a different law.
UN Draft Convention on Independent Guarantees and Stand-by Letters of Credit, articles 25 bis, 26 and 27.
[14] Federal Civil Code.
[15] MEXICAN CONSTITUTION.- Artículo 133.- Esta Constitución, las leyes del Congreso de la Unión que emanen de ella y todos los Tratados que estén de acuerdo con la misma, celebrados y que se celebren por el Presidente de la República, con aprobación del Senado, serán la Ley Suprema de toda la Unión. Los jueces de cada Estado se arreglarán a dicha Constitución, leyes y tratados, a pesar de las disposiciones en contrario que pueda haber en las Constituciones o leyes de los Estados.
Article 133. This Constitution, the laws of the Congress of the Union that emanate theretofore, and all treaties that have been made and shall be made in accordance therewith by the President of the Republic, with the approval of the Senate, shall be the supreme law of the whole Union. The judges of each State shall conform to the said Constitution, the laws, and treaties, in spite of any contradictory provisions that may appear in the constitutions or laws of the States