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IMPORTANT: As of July 1st, 2011, functions once performed by the Wisconsin Department of Commerce have been moved to other state agencies and the Wisconsin Economic Development Corporation. The former Commerce web site will continue to exist for the next several months as resources are moved to new web site locations. We will make every attempt possible to direct our users to the new locations as web resources are moved.
Bureau of Export Development
PO Box 7970
Madison, WI 53707-7970
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Vol.
8 #6, July 2009
Effective Payment through Mexican Promissory Notes
by Vince Lencioni, Director of the Wisconsin Trade Office in Mexico
The pagaré, a Mexican promissory note, is the simplest and most
effective instrument to use in Mexico when offering credit terms to
distributors or clients. While other guarantee instruments might
offer greater security, their onerous natures make them unpopular with
Mexican customers and preclude their regular use in the country.
A Letter of Credit (LC) is an effective guarantee, but it implies high
collateral levels and high interest rates and bank fees for the Mexican
client. A bond is also effective, but can be expensive and
requires endorsees and high collateral as well. On the other
hand, the use of a pagaré does not require the Mexican client to
take on high bank fees, interest rates, nor high collateral
requirements. While it is not a direct guarantee like an LC, it
is probably the most straight-forward and one of the most executable
legal documents in Mexico.
All pagaré documents should contain the following elements in order to be valid and recognized in court:
- the mention of the word “pagaré” in the document;
- the existence of an unconditional promise to pay a determined sum of money;
- the name of the person/company that is the Vendor;
- the time and place of payment (listing both the U.S. company and Mexican company addresses as options);
- the date and place where the document was signed; and
- the signature of the Buyer or the person that signs in his/her name.
The Vendor creates a pagaré for the amount of the sale,
generally incorporating interest terms in case of late payment.
The Buyer signs the pagaré, which functions as a personal
guarantee for the entire amount mentioned in the document and the
conditions contained within. The Vendor keeps the original of the
pagaré and uses it as a guarantee over the Buyer until the Buyer
pays. When the Buyer pays, the Vendor will send the pagaré
to the Buyer for its destruction. It is a common practice to
include not only the buying company but also the owner or president of
the buying company as an endorsee or co-subscriber in the
pagaré. In this way, not only can the Vendor go after the
buying company’s assets, but also the personal assets of the
owner or president.
In case of non-payment or partial payment, the pagaré functions
as an executable legal document that allows the Vendor to gain access
to assets (financial and fixed), generally equal to two- to three-times
the amount of the pagaré. A few days before the
pagaré is due, the Vendor should contact the Buyer to verify
when or if the payment is forthcoming. If the payment is still in
question on the day the pagaré is due, the document must be
presented for payment to the Buyer. If the Buyer refuses, the
Vendor, with its attorney, can instigate legal proceedings.
Once assets are secured, the Buyer usually is ready to negotiate
payment. With a good lawyer, cooperative court officials, and a
Buyer that is not bankrupt or is unable to “disappear” from
its assets and fiscal domicile, the seizing of assets should be
possible in approximately one month. If the Buyer does not have
or cannot secure sufficient funds, the Vendor can gain the right to
auction off the already seized assets of the Buyer.
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