By: Leopoldo Paullada Rivera
PLC Legal Consultants
Many companies have their terms and conditions of purchase (T&Cs), which govern their legal relationship with vendors and suppliers. Instead of entering into a supply or purchase contract with a vendor or a supplier each time they make a transaction, the customer ties their relationship to the T&Cs. The common practice is for a company to place a purchase order with a vendor or supplier, which is a binding agreement. The purchase order is usually a simple document that contains commercial terms, but it also usually contains a legend that states that the relationship between the parties under the purchase order will be governed by the terms and conditions of the client.
We have encountered several issues that affect the effectiveness of the T&Cs in Mexico:
- Application in a specific jurisdiction: Many of the T&Cs are intended to apply in all countries in which a parent company is located and contain provisions that only apply to a specific country. For instance, a US parent company publishes its T&Cs on its website, which apply globally in all transactions between their foreign subsidiaries and their vendors or suppliers. Some of the provisions that apply in the US do not apply in Mexico.
- Governing law and jurisdiction: This clause of the T&C’s has also caused uncertainty as to what law and jurisdiction applies to the parties. It is common for the T&C’s to state that the applicable law and jurisdiction will be that of the State in which the parent company has its main headquarters. When a vendor or supplier breaches the purchase order, it has resulted in a Mexican company having to sue in the United States a vendor or supplier based in other country (China, Japan, Taiwan, Spain, etc.) in the United States. This has caused competence issues with the US courts, in addition to the high legal expenses and complications of trying to serve process on a party based in other country.
- Conflict with contracts: Sometimes a company, in addition of placing a purchase order, also executes a broader contract with a vendor or supplier for the same transaction. What applies if there are conflicting provisions between the contract and the T&Cs?
- Termination by suppliers or vendors: Sometimes a supplier or vendor terminates a purchase order and the customer is left with no time to contract with other supplier or vendor that may supply the same goods, causing the customer to potentially breach its own supply commitments with third parties.
One of the purposes of having T&Cs is to make the legal relationship with vendors and suppliers more practical and dynamic. But sometimes, for the reasons explained above, it becomes more difficult and expensive to enforce them than it should be.
Our law firm represents various subsidiaries of foreign companies doing business in Mexico, and it has helped them to draft and implement their T&C’s in Mexico in a manner that they accomplish two main goals (a) having a practical and dynamic tool that governs their relationships with vendors and suppliers, and (b) being easy to enforce in case a vendor or a supplier breaches the purchase order.