Issue #
April 2012

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Real Property Owner Required to Comply with Social Security Contributions for Employees of their Construction Contractor

April 30, 2012

Real property owners must constantly enter into agreements for the construction of improvements, includingbuildings, warehouses, offices, etc., in which case the work is carried out by contractors, through their employeesor sub-contractors. By law, such contractors are responsible for compliance with the employee-employerobligations related to their contracted personnel and employees arising from the corresponding project. Inaddition to the real property owner’s risk of being considered a substitute employer of the employees of itscontractor, given that the source of employment and beneficiary of the services is precisely the real property ofthe owner, there is also a risk related to non-compliance with the employee-employer fees that must be paid to theMexican Social Security Institute (IMSS, for its acronym in Spanish). In relation to such, the Social SecurityLaw and the Mandatory Social Security Regulation for Construction Employees for Specific Work and Timeestablish that the owners of the work and improvements are considered employers for purposes of compliancewith such employer-employee fees due to the IMSS. This signifies a direct risk for the real property owner in theevent that the contractors do not comply with their social security obligations. Therefore, it is very important todraft and execute legally binding agreements with respect to the services that will be provided by the contractorsthat include clauses aimed at protecting the real property owner and removing such owner from the employmentrelationship with the contractors’ employees. Furthermore, it is also very important to verify the contractors’compliance with employee-employer obligations, including IMSS obligations, by obtaining a release documentissued by the IMSS certifying compliance, or, if applicable, the report on fulfillment of obligations presented tothe IMSS. Moreover, it is also important to protect the real property owner until the previously indicated releaseis obtained, by means of holding on to retainage or requiring a bond that covers liabilities. In both cases, theamount should be adequate for the project, and such should only be released once compliance is demonstrated bythe contractor and/or subcontractor.

Recent Jurisprudence – Promissory Note with Successive and Accelerated Maturity

April 30, 2012

Recently, the First Chamber of the Supreme Court of Justice of the Nation (SCJN, for its acronym in Spanish)published the legal decision, pursuant to conflicting court opinions, number 1a./J. 85/2011 (9a.) titled,“Promissory note with successive and accelerated maturity. Payable as of the business day following the date ofthe payment installment that was not covered by the obligor” in the Weekly Federal Court Gazette. In suchopinion, the First Chamber of the SCJN held that promissory notes with successive maturities may not be heldpayable on demand. Thus, the provisions of article 79 of the General Law on Negotiable Instruments and CreditTransactions (LGTOC, for its acronym in Spanish), which establish that documents with successive maturitydates shall be payable on demand, do not apply. The SCJN established that this would violate the literal meaningof promissory notes, based on the principle that the parties to the promissory note have already agreed that suchnote would be payable at a certain time. Additionally, the SCJN determined that the terms for computing penaltyinterest (based on accelerated maturity of promissory notes due to default with respect to an installment paymentpreviously agreed to) shall be computed as of the business day following the due date of the installment paymentindicated in the promissory note.. The above is in accordance with the provisions of article 81 of the LGTOC,which establishes that in order to compute the legal terms, the day on which the document was executed shall notbe considered.

Mexico Agrees to Renegotiation of ACE 55 with Brazil; Now Faces Argentina

April 30, 2012

Following up on the article published in the previous edition on Economic Complementation Agreement No. 55between MERCOSUR and Mexico (“ACE 55”), we reported that Mexico decided to agree to a renegotiation withBrazil. As a result, on March 19, 2012, Brazil and Mexico signed the Fourth Additional Protocol to Appendix II“On Commerce in the Automotive Sector between Brazil and Mexico” to ACE 55, agreeing to establishmaximum quotas or limits on annual importations of lightweight automotive vehicles for the period from March19, 2012 through March 18, 2015. Mexico chose to the ACE 55 Agreement and, as a result, allowed thisrestriction on free trade of automotive vehicles to continue, but establishing a direct assignment of import quotasmechanism which has been agreed to by Mexican assembly plants which will share up to 1.45 million dollars intariff free exports to Brazil in the first year. Nissan has already announced plans to accelerate investment in anew plant in Rio de Janeiro, an example of the problems that the restriction presents to the Mexican automotivesector. Now, Mexico is also facing pressure from Argentina to renegotiate the conditions agreed to by bothcountries for the automotive sector under the same agreement, based on the same arguments and strategyemployed by Brazil. Under ACE 55, Mexico currently has a $693 million dollar surplus in its balance of tradewith Argentina, and Mexico’s Secretary of the Economy has openly stated his opposition to any renegotiationwith Argentina.