VOLUME 2000
July 19, 2000
Number 15 & 16
Foreign Tax Law
Bi-Weekly Bulletin

MEXICO
ADDITIONS TO THE GENERAL LAW OF NEGOTIABLE INSTRUMENTS AND CREDIT OPERATIONS
By Decree published on May 23, 2000, the General Law of Negotiable Instruments and Credit Operations was amended by the addition of the following articles in a new Part VII of Title II of the Law. Additionally the Commercial Code and the Law of Credit Institutions were amended. All of these amendments will be included in COMMERCIAL LAWS OF THE WORLD - MEXICO and the Mexican section of FOREIGN TAX & COMMERCIAL LAWS ON CD-ROM for the August editions.

PART SEVEN. PLEDGE WITHOUT TRANSFER OF POSSESSION (Negotiable Instruments)
ARTICLE 346. (Negotiable Instruments)
A pledge without transfer of possession constitutes an in rem right on personal property whose object is to guarantee compliance with an obligation and its priority of payment, allowing the debtor the material possession of such property. Exceptionally, it may be agreed that the creditor or a third party take material possession of the pledged property.

In any case, the process of enforcement of the guarantee shall be subject to that which is established by Title III Bis of the Commercial Code.

ARTICLE 347. (Negotiable Instruments)
Contracts by means of which the constitution of guarantees through pledge without transfer of possession is documented, shall be mercantile for all the parties involved therein. Those acts that are concluded between two or more individuals who are not merchants in the terms of the Commercial Code, as well as those acts that, in accordance with the same Code, are not considered as acts of commerce, are excepted.

In controversies that arise due to a pledge without transfer of possession, shall be governed by the provisions of articles 1049 and 1050 of the Commercial Code.

ARTICLE 348. (Negotiable Instruments)
The amount of the guarantee may be an amount determined at the time of the constitution of the guarantee or determinable at the time of its enforcement.

Unless there exists an agreement to the contrary, the guarantee shall include ordinary and delinquent interest stipulated in the respective contract and the expenses incurred in the process of execution.

ARTICLE 349. (Negotiable Instruments)
When the debtor is allowed to make partial payments, the guarantee shall be reduced indeed proportionally in respect to the payments made, if the guarantee devolves upon several objects or they are comfortably divisible by reason of their legal nature without reducing their value, provided that the rights of the creditor remain duly guaranteed.

ARTICLE 350. (Negotiable Instruments)
If the debtor becomes subject to a bankruptcy process, the credits charged to him which are guaranteed by means of a pledge without transfer of possession shall be demandable from the date of the declaration and the ordinary interest stipulated shall continue to accrue within the scope of the respective guarantee.

ARTICLE 351. (Negotiable Instruments)
In case of insolvency or bankruptcy of the debtor, the property that is the object of a pledge without transfer of possession existing in the assets may be foreclosed upon by the chattel mortgage holder, by means of a corresponding action pursuant to the law on the matter, before the bankruptcy court, which must decree the foreclosure without further proceedings.

If the foreclosure is opposed, the litigation shall be resolved collaterally. The decision that the judge hands down, whether or not by litigation, shall only be appealed under a devolutive appeal.

ARTICLE 352. (Negotiable Instruments)
Any obligation may be guaranteed by a pledge without transfer of possession, regardless of the principal activity in which the debtor is engaged.

ARTICLE 353. (Negotiable Instruments)
Any classification of rights or personal property may be pledged without transfer of possession.

Property that are already pledged in accordance with this Part Seven may not be given in an ordinary pledge or other guarantee.

ARTICLE 354. (Negotiable Instruments)
Pledged property must be identified, except in the case in which the debtor pledges all the personal property that he uses in carrying out his principal activity to the creditor without transfer of possession, in which case the property may be identified generically.

Article 355. (Negotiable Instruments)
The following personal property may be pledged without transfer of possession:

I. Those assets and rights that are in the net wealth of the debtor at the time of granting the non-possessory pledge, including trade names, trade marks and other rights;

II. Assets and rights equivalent or similar to those stipulated in the preceding item, that the debtor acquires after the constitution of the non-possessory pledge;

III. Assets derived as yields or future products, pending or already obtained from the assets and rights mentioned in the preceding items;

IV. Assets resulting from processes of transformation of the aforementioned assets, and

V. Assets or rights that the debtor receives or has a right to receive in payment for the disposal to third parties of the pledged property to which this article refers, or as indemnification in case of damages or destruction of such property.

Article 356. (Negotiable Instruments)
Unless there exists an agreement to the contrary, a collateral debtor shall have a right to:

I. Make use of the pledged property, as well as to combine the assets with others and use them in the manufacture of other goods, provided and when in the last two cases their value is not diminished and the goods produced continue to form part of the guarantee in question;

II. To receive and utilize the yields and products of the pledged property, and

III. To sell the pledged property in the normal course of his principal activity, in which case the effects of the collateral guarantee shall cease as well as rights of prosecution against good faith third party purchasers, the property or rights that the debtor received or has a right to receive in payment for the disposal of the referenced property remaining in pledge.

The right granted to the debtor to sell or transfer, in the ordinary course of his principal activities, the pledged property shall be extinguished from the moment in which notification of the initiation of any of the enforcement procedures, provided in Book Five, Title Three Bis of the Commercial Code, against him may be received. If the pledged property represents more than 80% of the assets of the debtor, such assets may be disposed of in the ordinary course of his activities with the prior authorization of the Judge or of the creditor, as the case may be.

ARTICLE 357. (Negotiable Instruments)
For purposes of the provisions in articles 355 and 356, the parties must agree upon the following, at the conclusion of the contract of a pledge without transfer of possession:

I. If applicable, the places in which the pledged property must remain;

II. The minimum price that the debtor must receive from the sale or transfer of the pledged property;

III. The characteristics or categories that permit identification of the person or persons, or for the latter, specifications, to which the debtor may sell or transfer the pledged property, as well as the destination of the money, goods or rights received in payment therefrom, and

IV. The information that the debtor must deliver to the creditor on the transformation, sale or transfer of the aforementioned property.

In case of non-compliance with the stipulations agreed upon on the basis of this article, the credit guaranteed with a pledge without transfer of possession shall be considered as matured in advance and thus due and payable immediately.

ARTICLE 358. (Negotiable Instruments)
Notwithstanding that the debtor pledges in non-possessory pledge all the personal property that he utilizes in his principal activities to his creditor, the debtor may give the assets that he acquires with the resources of the credit in guarantee to other creditors that the new creditors grant him, in the terms provided in this Part Seven.

In this case, the first creditor shall continue to have priority for the payment of his credit on all the personal property that the debtor has given in pledge without transfer of possession, ahead of any creditor, with exception of the assets acquired by the debtor with the resources that the new creditor furnished to him, which may serve as a guarantee to the new creditor and assure his priority in payment in respect to any other creditor of the debtor, including the first creditor.

The exception to which this article refers shall only proceed in the case of personal property that can be identified with every precision and distinguished from the rest of the personal property that the debtor has given in pledge to the first creditor.

ARTICLE 359. (Negotiable Instruments)
Future obligations may be guaranteed by a non-possessory pledge, but in this case the guarantee cannot be enforced, nor be adjudicated to the creditor, if the principal obligation remains demandable.

ARTICLE 360. (Negotiable Instruments)
If the respective contract establishes that the pledged assets must be insured for an amount that covers their replacement value, the debtor has the faculty of determining the insurance company that shall be entrusted therewith. The collateral creditor must be designated as beneficiary in the aforementioned policy. The unpaid balance of the guaranteed credit shall be reduced in proportion to the payment that the creditor receives from the insurance institution. If any remainder should exist, the creditor must deliver it to the debtor no later than the third working day following the date on which it was received.

ARTICLE 361. (Negotiable Instruments)
The debtor is obligated to maintain the assets pledged in non-possessory pledge, to be liable for deterioration and losses that are sustained due to his fault or negligence; and to not utilize them for a purpose other than that agreed to with the debtor.

The expenses necessary for the due maintenance, repair, administration and recovery of the pledged property shall be the responsibility of the debtor.

The creditor shall have the right to demand another pledge or the payment of the debt even before the agreed period if the pledged assets are lost or deteriorate in excess of the limit that the contracting parties stipulated for that purpose.

ARTICLE 362. (Negotiable Instruments)
The debtor shall be obligated to permit the creditor to inspect the pledged property for the purpose to determine, as the case may be, its weight, quantity and state of general maintenance. That inspection shall have the characteristics and extension that the parties agree upon.

If thus agreed upon in the contract, if the market value of the property pledged in a non-possessory pledge decreases to the extent that it is not sufficient to cover the amount of the principal and the accessories of the debt that is guaranteed, the debtor may pledge additional assets to restore the original proportion. In the contrary case, the credit may be matured in advance, once the procedure provided in the following article has been carried out, in which case the creditor must notify the debtor thereof judicially or through a notary. For this purpose, the parties must agree upon the amount that such reduction of market value must reach for the credit to be able to mature in advance.

ARTICLE 363. (Negotiable Instruments)
From the conclusion of the contract constituting the non-possessory pledge, the parties must establish the bases for appointing an expert, whose responsibility shall be to report upon the updating of the cases provided in articles 361 and 362, after having heard both parties.

The parties may appoint a general deposit warehouse as an expert for the purposes of the provisions of this article, as well as entrust thereto the safekeeping and conservation of the pledged property, in terms of item I of article 357.

ARTICLE 364. (Negotiable Instruments)
The creditor is obligated to release the pledge after the principal, interest and other accessories of the debt are fully paid, for which purpose the same formalities utilized for its constitution shall be followed.

When the creditor does not release the pledge in accordance with that which is established in the preceding paragraph, the debtor shall be indemnified for damages and losses occasioned thereby, regardless of the fact that the pledged property must be released.

ARTICLE 365. (Negotiable Instruments)
The contract constituting the non-possessory pledge, must be in writing and when the transaction refers to assets whose amount is equal or greater than the equivalent in national currency than 250,000 Investment Units, the parties must ratify their signatures before a notary public.

The guarantee shall be considered constituted upon the signing of the contract, becoming effective between the parties from the date of its conclusion.

ARTICLE 366. (Negotiable Instruments)
A pledge without transfer of possession shall become effective against third parties from the date of its registration in the register.

ARTICLE 367. (Negotiable Instruments)
Creditors guaranteed with a pledge without transfer of possession, shall receive the principal and the interest of their credits from the product of the property that is the object of those guarantees, to the absolute exclusion of other creditors of the debtor.

The provision of the preceding paragraph is without prejudice to the priorities that correspond to labor claims against the debtor pursuant to the law.

In any case, attachments for indebtedness to workers that devolve upon assets in possession of the debtor, must be made only on those assets that will cover the amount of the corresponding labor claim.

When the assets that are the object of the guarantee have been acquired with the product of the guaranteed credit, the priority that this article establishes, by which it refers to the aforementioned assets, shall prevail over the creditors (the labor claims) mentioned in the second paragraph of this provision.

ARTICLE 368. (Negotiable Instruments)
A pledge without transfer of possession shall have the priority to which the preceding article refers from the moment of its registration.

The priority of the new creditors to which article 358 refers shall not be affected by the fact of registration of their guarantees after the registration of those by means of which the debtor has given all the personal property that he utilizes in carrying on his principal activities in guarantee to the other creditor.

ARTICLE 369. (Negotiable Instruments)
The guarantee on personal property constituted in terms of this Part Seven shall have priority over a mortgage guarantee, financing or trust guarantee, if the former guarantee is recorded before the aforementioned personal property is attached, if applicable, to the real property that is the object of the latter guarantees.

ARTICLE 370. (Negotiable Instruments)
The priority between the guarantees that have not been recorded shall be determined by the chronological order of the respective authentic contracts.

ARTICLE 371. (Negotiable Instruments)
A registered pledge without transfer of possession shall have priority over:

I. Unsecured credits;

II. Unregistered liens on real property, and

III. Unregistered pre-existing judicial liens.

ARTICLE 372. (Negotiable Instruments)
The priority established on behalf of creditors, guaranteed pursuant to this Part Seven, may be modified by means of an agreement signed by the affected creditor.

The new priority established by the parties shall be effective as from its registration.

ARTICLE 373. (Negotiable Instruments)
For purposes of article 356, a purchaser in bad faith shall be understood as any person who, knowing of the existence of the guarantee, acquires the personal property subject thereto through transactions in which conditions or terms are agreed upon that significantly differ from market conditions prevailing at the time of their conclusion, or from the general marketing policies that the debtor follows, or from sound commercial practices and customs.

A purchaser shall not be understood to be in bad faith even though the conditions established in the preceding paragraph are violated, if the prior authorization of the creditor is obtained.

ARTICLE 374. (Negotiable Instruments)
The debtor shall be obligated to request written authorization from the guaranteed creditor in order to sell the assets subject to the guarantee in the terms of article 356, to the following persons:

I. Individuals and legal persons who hold more than 5% of the capital stock of the debtor;

II. Members of the board of directors of the debtor and their deputies;

III. Spouses and family members by blood or marriage up to the second degree of kinship or civil relationships with the persons mentioned in the preceding items or with the debtor himself, if he is an individual, and

IV. Employees, officials and creditors of the debtor.

For the purposes of the authorization that the guaranteed creditor must grant, he shall have 10 calendar days to give it; if he does not respond, the authorization shall be considered tacitly granted to the debtor.

Sales made without the authorization to which this article and the preceding article refer, shall be null and void, so far as applicable, for which the effects of the guarantee shall not cease and the creditor shall reserve the right of pursuit on the respective assets in relation to the purchasers.

Likewise, the respective contract may foresee that if sales are made in violation of the provisions of this article, the period of the credit shall mature in advance.

ARTICLE 375. (Negotiable Instruments)
The rights of creditors guaranteed pursuant to this Part Seven shall prescribe in three years from the time that the guaranteed obligation could be demanded. In this case the right to request compliance therewith shall be extinguished.

ARTICLE 376. (Negotiable Instruments)
Acts in which the constitution, modification, extinction, transfer and the judicial decisions on cancellations of the pledge without transfer of possession to which this Part Seven refers, are recorded, must be registered in the Public Trade Register of the place in which the debtor is domiciled or, if applicable, in the corresponding Special Register, as the case may be.

ARTICLE 377. (Negotiable Instruments)
Registrars shall abstain from suspending or refusing the registration of guarantees on personal property, whose identification is made generically in correspondence to the principal activity of the debtor, in terms of the provisions in article 354.

ARTICLE 378. (Negotiable Instruments)
In the case of guaranteed obligations whose amount shall be determinable at the time of the enforcement of the guarantee, their registration shall proceed even when the maximum amount that the collateral guarantees is not fixed.

ARTICLE 379. (Negotiable Instruments)
The parties must stipulate in the contracts through which the guarantees by means of a pledge without transfer of possession are granted, that if the product of the sale of the asset or assets subject to the guarantee do not cover the total amount of the guaranteed obligations of the debtor, the latter shall be released from the obligation of covering the differences that result, the rights of the creditor to demand those differences being considered extinguished.

The provisions of this article may not be waived.

ARTICLE 380. (Negotiable Instruments)
Whoever having material possession of assets subject to guarantees granted by means of a pledge without transfer of possession, event the creditor himself, should transfer them in terms other than those provided in the law, encumbers or affects the ownership or possession thereof, removes their components or abuses them outside of their normal use or for any reason intentionally decreases their value, shall be penalized with a prison sentence up to one year and a fine of 100 times the general minimum daily wage in force in the Federal District, when the amount of the guarantee does not exceed 200 times the equivalent of that wage.

If said amount exceeds this amount, but not over 10,000, the prison sentence shall be from one to six years and the fine from 100 to 180 times the general minimum daily wage in force in the Federal District. If the amount is greater than the equivalent of 10,000 days of the aforementioned wage, the prison sentence shall be from 6 to 12 years and the fine from 120 times the general minimum daily wage in force in the Federal District.

From the time of the constitution of the guarantee trust, the institution that shall act as fiduciary must be appointed.

ARTICLE 396. (Negotiable Instruments)
(Added by Decree of May 23, 2000) The makers and trustees of a trust may be any individual or legal person, regardless of the principal activity in which he or it is engaged.

The makers of a trust, moreover, must have the necessary capacity to make the allocation of property and rights that the trust implies.

ARTICLE 397. (Negotiable Instruments)
(Added by Decree of May 23, 2000) The trustee may be appointed by the maker of the trust in the constitutional deed of the trust or in a subsequent act.

The maker of the trust may appoint two or more trustees, for which effect the order of priority among them must be stipulated or, as the case may be, the percentage that shall correspond to each one of them from the property allotted to the trust.

ARTICLE 398. (Negotiable Instruments)
(Added by Decree of May 23, 2000) The same guarantee trust may be utilized to guarantee different obligations that the trustor contracted with different creditors simultaneously or successively, for which effect the trustee shall be obligated to notify the fiduciary institution that the obligation in its favor has been extinguished, within the 10 days following the day on which such occurred, the rights that in respect thereof were derived from the trust becoming ineffective. The notification must be delivered by means of a notary public, no later than five working days following the date on which the payment was received.

As from the time in which the fiduciary receives the aforementioned notification, the trustor may appoint a new trustee or manifest to the fiduciary institution that the end for which the trust was formed has been realized.

A trustee who does not deliver the notification to which this article refers to the fiduciary within the time period allowed, shall compensate the trustor for the damages and losses that he occasioned thereby.

ARTICLE 399. (Negotiable Instruments)
(Added by Decree of May 23, 2000) The following entities may act as fiduciaries of guarantee trusts provided in this Second Part, subject to that which article 85 Bis of the Law of Credit Institutions provides for the purpose:

I. Credit institutions;

II. Insurance institutions;

III. Bond institutions;

IV. Limited purpose financial companies, and

V. General deposit warehouses.

ARTICLE 400. (Negotiable Instruments)
(Added by Decree of May 23, 2000) The institutions and companies mentioned in the preceding article may be both fiduciaries and trustees, in the case of trusts whose purpose is to guarantee obligations in their favor.

Said institutions and companies shall be liable for the acts that they commit in prejudice of the trustors, in bad faith or in excess of the faculties that correspond to them for the execution of the trust, by virtue of the constitutional deed or the law, except for those activities or operations other than those established in article 402 of this Law.

ARTICLE 401. (Negotiable Instruments)
(Added by Decree of May 23, 2000) Any class of rights and real and personal property may be the object of guarantee trusts.

Property and rights that are given in trusts shall be the property of the fiduciary institution, shall be considered allotted to the purpose of guaranteeing obligations contracted by the trustor and, consequently, only the rights and shares referred to the aforementioned purpose may be exercised in respect thereto, except those that are derived for the maker of the same trust or those acquired legally by third parties, prior to the constitution of the trust.

ARTICLE 402. (Negotiable Instruments)
(Added by Decree of May 23, 2000) In the case of trusts on personal property, the maker of the trust shall have a right to do the following, unless there exists an agreement to the contrary:

I. To make use of the property in trust, as well as to combine them with others and use them in the manufacture of other property, provided and when their value does not decrease in the latter two cases and the goods produced shall become part of the guarantee in question;

II. To receive and utilize the fruits and products of the property in trust, and

III. To sell the property in trust in the normal course of his principal activities, without responsibility to the fiduciary, in which case the effects of the guarantee fiduciary and the rights of pursuit in relation to good faith purchasers shall cease, the property or rights received or the right to receive payment for the sale of the referred property by the same trustor being allotted to the trust.

The right granted to the trustor to sell or transfer the personal property allotted in trust in the normal course of his principal activities shall be extinguished from the time he receives notification of the initiation of any of the procedures of distraint against him, provided in the Fifth Book, Title Three Bis of the Commercial Code. If the pledged property represents more than 80% of the assets of the debtor, the latter may sell them in the ordinary course of his activities with the prior authorization of the Court or of the creditor, as the case may be.

The fiduciary cannot be entrusted with the performance of the activities and the operations provided in this article.

ARTICLE 403. (Negotiable Instruments)
(Added by Decree of May 23, 2000) If the respective contract establishes that the property allotted in trust other than land must be insured for an amount that covers its replacement value, the debtor shall have the faculty to determine the insurance company that shall be entrusted therewith. The fiduciary must be designated as beneficiary in the aforementioned insurance.

The fiduciary shall utilize the amounts that it receives from the insurance institution to liquidate the unpaid balance of the credit in favor of the trustor. If any remainder exists, the fiduciary must deliver it to the trustor.

ARTICLE 404. (Negotiable Instruments)
(Added by Decree of May 23, 2000) The risks of loss, damage or deterioration of the value of the property in trust, shall be carried by the party that is in possession thereof, the other parties being duly permitted to inspect it for the purpose of verifying its weight, quantity and state of general conservation, as the case may be.

If so agreed in the contract, if the market value of the property in trust decreases insofar that it is not sufficient to cover the amount of the principal and the accessories of the debt that they guarantee, the debtor may add additional property to restore the original proportion. In the contrary case, the credit may be matured in advance, the creditor having to notify the debtor thereof judicially or through a notary.

ARTICLE 405 (Negotiable Instruments)
(Added by Decree of May 23, 2000) When material possession of the property in trust corresponds to the trustor, he shall be obligated to keep them as if they were his own, to not utilize them for a purpose other than that which has been agreed for the purpose with the trustee and to be liable for the damages caused to third parties by making use thereof. This liability may not be required of the fiduciary.

In this case, the expenses necessary for the due conservation, repair, administration and recollection of the property in trust shall be the liability of the trustor.

If the property in trust is lost or deteriorates, the trustee has the right to require the trustor to allot other property in trust or to pay the debt even before the agreed upon period.

ARTICLE 406 (Negotiable Instruments)
(Added by Decree of May 23, 2000) For purposes of the provisions in articles 402, 404 and 405, the parties must agree upon the following, as from the constitution of the trust:

I. The places in which the goods in trust must be found, if applicable;

II. The characteristics and the scope of the inspections, as well as the reduction of the market value of the goods in trust, to which article 404 refers;

III. The minimum compensation that the trustor must receive from his counterpart, for the sale or transfer of personal property in trust;

IV. The person or persons to whom the debtor may sell or transfer said property, stipulating, if applicable, the characteristics or categories that permit identification thereof, as well as the destination of the cash, property or rights received in payment;

V. The information that the trustor must deliver to the trustee on the transformation, sale or transfer of the aforementioned property;

VI. The manner of valuating the goods in trust by a third party, or subject to the nature and characteristics of the property that guarantees the reference to an index of values or parameter of reference recognized by the parties, as well as the extension of the loss or the degree of deterioration of the same property, which may give rise to the application of the provision in the second paragraph of article 404 and the last paragraph of article 405, and

VII. The terms in which the review of the contracted appraisal shall be accorded, in the case in which the asset or assets given in guarantee increase in value substantially.

If the conventions concluded on the basis of this article are not fulfilled, the credit guaranteed by the trust shall come due in advance.

ARTICLE 407 (Negotiable Instruments)
(Added by Decree of May 23, 2000) The formation contract of the guarantee trust must be in writing and when the transaction refers to personal property and their amount is equal or greater than the equivalent to 250,000 Investment Units in national currency, the parties must ratify their signatures before a notary.

The allocation of real property in a guarantee trust shall be recorded on a public deed.

The guarantee shall be considered formed by signing of the contract, the date of its conclusion being considered the effective date thereof between the parties.

ARTICLE 408 (Negotiable Instruments)
(Added by Decree of May 23, 2000) When personal property is allotted in trust the assets thereof must be specified, adjusting to the provisions in article 354.

ARTICLE 409 (Negotiable Instruments)
(Added by Decree of May 23, 2000) Actions of creditors guaranteed with a guarantee trust shall prescribe in three years from the date on which the guaranteed obligation can be demanded. In this case the right to request compliance therewith will be extinguished and the ownership of the assets subject to the guarantee shall revert to the net wealth of the trustor.

ARTICLE 410 (Negotiable Instruments)
(Added by Decree of May 23, 2000) The acts in which the constitution, modification, extinction, assignment and judicial resolutions on cancellations of guarantee trusts to which this Second Part refers are recorded must be registered in the Public Commercial Register of the place in which the domicile of the debtor is located in the case of trusts in which only personal property is allotted.

When real property, or real property and personal property, is subject to the guarantee trust, the registration of the acts to which the preceding paragraph refers must be made in the corresponding register in the place in which the real property is located or, in certain cases, in the Special Register that corresponds to the nature of the property.

ARTICLE 411 (Negotiable Instruments)
(Added by Decree of May 23, 2000) The institutions stipulated in article 399 of this Law shall indemnify trustors for acts in bad faith or in excess of the faculties that correspond to them for execution of the trust, by virtue of the deed of formation or of the law, that they realize in prejudice thereof.

The indemnity to be paid in terms of this article shall not be less than 10% of the principal value and the interest of the sum guaranteed, and at any time that such indemnity is procured it shall cover the losses caused by said institutions. When the violating institution is both fiduciary and trustee, the indemnity shall be double the aforementioned amount.

ARTICLE 412 (Negotiable Instruments)
(Added by Decree of May 23, 2000) The parties must stipulate in the contracts through which they grant guarantees by means of a guarantee trust, that in case the product of the sale of the asset or assets subject to the guarantee do not cover the total amount of the guaranteed obligations charged to the debtor, the latter shall not have to cover the differences that result and the rights of the creditor to demand the differences shall be considered extinguished.

The provision in this article is unwaivable.

ARTICLE 413. (Negotiable Instruments)
(Added by Decree of May 23, 2000) Whoever, having the material possession of the assets subject to guarantees granted through a guarantee trust, even the creditor, transmits the ownership or possession thereof in terms other than that provided in the law, encumbers or allots the ownership or possession thereof, takes away components therefrom or wears them down more than normal use would indicate or for any reason intentionally decrease the value thereof, will be penalized with prison up to one year and a fine of 100 times the general daily minimum wage in force in the Federal District, when the amount of the guarantee does not exceed the equivalent of 200 times said wage.

If that amount exceeds that quantity, but not 10,000, the prison sentence shall be from one to six years and the fine from 100 to 180 times the general daily minimum wage in force in the Federal District.

ARTICLE 414. (Negotiable Instruments)
(Added by Decree of May 23, 2000) Articles 346 to 349, 351, 367 to 375 and 378 to 393 of this Law shall be applicable to the guarantee trust provided in this Second Part.

The second article of the Decree adds the following provisions to the Commercial Code: item XXIV to article 75, and the current item XXIV shall become item XXV; Title Three Bis, Chapter I; articles 1414 bis, 1414 bis 1, 1414 bis 2, 1414 bis 3, 1414 bis 4, 1414 bis 5, 1414 bis 6, and Chapter II, articles 1414 bis 7, 1414 bis 8, 1414 bis 9, 1414 bis 10, 1414 bis 11, 1414 bis 12, 1414 bis 13, 1414 bis 14, 1414 bis 15, 1414 bis 16, 1414 bis 17, 1414 bis 18, 1414 bis 19 and 1414 bis 20, of Book Five; it amends item XXV of article 75 and articles 1091, 1093, 1097, 1104 and 1105; and repeals articles 1097 bis, 1098 and 1109.

ARTICLE 1091. (Commercial Code)
(Amended by Decree of May 23, 2000) Whenever there are several competent judges in the place where the suit has to be brought, the one selected by the plaintiff shall have jurisdiction in the case, except as disposed to the contrary in the applicable organic laws.

ARTICLE 1093. (Commercial Code)
(Amended by Decree of May 23, 2000) There is express submission when the interested parties clearly and finally renounce the one granted them by law, and in case of controversy, designate as competent courts those of the domicile of any of the parties, the place of compliance with any of the obligations contracted or of the location of the item.

ARTICLE 1097. (Commercial Code)
(Amended by Decree of May 23, 2000) The judge or court, that determines that proceedings of incompetence of jurisdiction were interposed without reason and with the clear purpose of lengthening or hampering the trial, shall impose a fine on the plaintiff thereof, which shall not exceed the equivalent of 100 days of the minimum wage in the place in which the procedure is being presented.

ARTICLE 1097 bis. (Commercial Code)
Repealed by Decree of May 23, 2000.

ARTICLE 1098. (Commercial Code)
Repealed by Decree of May 23, 2000.

ARTICLE 1104. (Commercial Code)
(Amended by Decree of May 23, 2000) Except as provided in article 1093, irrespective of the nature of the suit, the following shall be preferred to any other judge:

I. The Judge of the place designated by the debtor where payment should be legally demanded.

II. The Judge of the place designated in the contract for the fulfillment of the obligation.

ARTICLE 1105. (Commercial Code)
(Amended by Decree of May 23, 2000) If the designation authorized in article 1093 has not been made, the Judge of the domicile of the debtor shall be competent whatever the action taken.

ARTICLE 1109. (Commercial Code)
Repealed by Decree of May 23, 2000.

TITLE III BIS. PROCEDURES EXECUTING A PLEDGE WITHOUT TRANSFER OF POSSESSION AND A GUARANTEE TRUST (Commercial Code)
CHAPTER I. EXTRAJUDICIAL PROCEDURE OF EXECUTION OF GUARANTEES GRANTED BY MEANS OF PLEDGE WITHOUT TRANSFER OF POSSESSION AND GUARANTEE TRUST (Commercial Code)
ARTICLE 1414 bis. (Commercial Code)
(Added by Decree of May 23, 2000) The payment of matured credits and the obtainment of possession of the assets subject to guarantees granted by means of a pledge without transfer of possession or a guarantee trust shall proceed in this way, provided that no controversies exist insofar as the demandability of the credit, the amount claimed and the delivery of possession of the aforementioned assets. For purposes of the preceding, the value of the assets may be determined by any of the following procedures:

I. By the report that an expert that the parties appoint renders for that purpose from the time of the making of the contract or on a subsequent date, or

II. By any other procedure that the parties agree upon in writing.

Upon conclusion of the contract the parties must establish the bases for appointing an authorized person, other than the creditor, to carry out the valuation of the assets, if this cannot be carried out in terms of that which established in the items of this article.

ARTICLE 1414 bis 1. (Commercial Code)
(Added by Decree of May 23, 2000) The procedure shall be initiated with the formal requirement of delivery of the possession of the assets, that the debtor, the fiduciary or the pledgee creditor shall draw up, as the case may be, by means of a notary public.

Once the possession of the assets are delivered to the fiduciary or pledgee creditor, the latter shall be considered the judicial depositary insofar as and until that which is provided in article 1414 bis 4 is carried out.

ARTICLE 1414 bis 2. (Commercial Code)
(Added by Decree of May 23, 2000) In the following cases the extrajudicial procedure shall be concluded and the official means shall be issued:

I. When the debtor opposes the material delivery of the property or the payment of the respective credit, or

II. When the agreement to which article 1414 bis has not been produced or it is impossible to comply with it.

ARTICLE 1414 bis 3. (Commercial Code)
(Added by Decree of May 23, 2000) Other than in the cases provided in the preceding article, the fiduciary or the creditor pledgee may obtain the possession of the property subject to the guarantee, if thus expressly stipulated in the respective contract. This act must be carried out before a notary public, who must draw up a formal statement thereof, as well as the itemized inventory of the assets.

ARTICLE 1414 bis 4. (Commercial Code)
(Added by Decree of May 23, 2000) Once the possession of the assets is delivered the disposal thereof shall proceed in the terms of article 1414 bis 17, item II.

ARTICLE 1414 bis 5. (Commercial Code)
(Added by Decree of May 23, 2000) If the fiduciary or the creditor pledgee, as the case may be, cannot obtain possession of the assets, the procedure of forced distraint to which the following Chapter of this Code shall be followed.

ARTICLE 1414 bis 6. (Commercial Code)
(Added by Decree of May 23, 2000) It shall not be necessary for the procedure to which the preceding articles to be completed to initiate the procedure of distraint provided in the following Chapter.

CHAPTER II. JUDICIAL PROCEDURE OF DISTRAINT OF GUARANTEES GRANTED BY MEANS OF A PLEDGE WITHOUT TRANSFER OF POSSESSION AND A GUARANTEE TRUST (Commercial Code)
ARTICLE 1414 bis 7. (Commercial Code)
(Added by Decree of May 23, 2000) Any judgment whose object is the payment of a certain, payable and demandable credit and the obtainment of the material possession of the assets that guarantee it shall be processed in accordance with this procedure, provided that the guarantee has been granted by means of a pledge without transfer of possession or a guarantee trust.

In order that the judgment should be given in accordance with the provisions of this Chapter, it is an indispensable requirement that the aforementioned credit should be recorded on a public document or a private written document, as the case may be, in the terms of the General Law of Negotiable Instruments and Credit Transactions and that it should be demandable in the terms agreed upon or in accordance with the applicable legal provisions.

Article 1414 bis 8. (Commercial Code)
(Added by Decree of May 23, 2000) Once the statement of claim is presented, accompanied by the respective contract and the determination of the balance that the creditor draws up, or when the creditor is a credit institution, annexation of the certification of balance that corresponds, the judge under his strictest responsibility, if he finds that the requirements established in the preceding article are met, in a period no greater than two days, shall admit the claim and hand down an order with the effects of a writ that the debtor shall be required to pay and, if he does not do so, must deliver material possession of the assets subject to the guarantee indicated in the contract to the plaintiff. In this latter case, the creditor shall be considered a judicial depositary and must inform the judge of the place in which the assets that shall be delivered to him shall be kept, insofar as they are not sold.

In the same court order by means of which payment is required from the debtor, the judge shall summon him to trial if he does not pay or does not deliver the material possession of the assets given in guarantee to the creditor, so that he should reply or object thereto, as the case may be, with the defenses indicated in article 1414 bis 10, within the term of five days.

The aforementioned determination of balance may be drawn up from the last statement of account that the debtor had received and accepted, if applicable, provided and when this is agreed upon, or else the creditor shall be obligated by provision of Law to deliver statements of account to the debtor. It shall be understood that the debtor has received and accepted that last statement of account if he did not object thereto in writing within the 10 working days following its receipt or else make installment payments to the creditor after its receipt.

ARTICLE 1414 bis 9. (Commercial Code)
(Added by Decree of May 23, 2000) The proceeding to which the preceding article refers shall not be suspended for any reason and shall be carried out until its conclusion, the debtor's rights being relinquished, unless he should assert them as advantageous to him during the trial. For the purpose of placing the assets in the material possession of the plaintiff, the judge shall warn the debtor of a fine that may be from three up to 400 times the general daily minimum wage in force in the Federal District. In order to impose the aforementioned fine, the judge must consider the amount of the guarantee claimed.

If the debtor does not deliver the assets under the proceeding provided in this article, the clerk of the court shall make a report giving account thereof to the judge, who shall proceed to make the decreed judicial compulsion effective and shall decree the measures conducive to procuring compliance with his decision in terms of this Chapter, in order that he may make use of the following measures of constraint:

I. The help of the police force, and

II. If the constraint is ineffective for reasons imputable to the debtor, the judge may order an administrative arrest against him, for up to 36 hours.

If the guarantee devolves upon a residential house, utilized as such by the defendant, the latter shall be appointed depositary thereof until the judgment, provided that he accepts that charge. When pursuant to the judgment, the defendant delivers the material possession of the real estate to the plaintiff, the judge shall make the decreed measure of constraint effective and decree the measures conducive to procuring compliance with the judgment, adjusting to that which is provided in this article.

ARTICLE 1414 bis 10. (Commercial Code)
(Added by Decree of May 23, 2000) The defendant may assert the defenses that are within his rights, but their proceeding shall be subject to the following rules:

I. Only defenses that are accredited by documentary proof shall be held as asserted, unless, by their nature, they require the offering and declaration of evidence other than documentary;

II. If the defense of lack of standing of the plaintiff is asserted and is declared proper, the judge shall concede a period no greater than 10 days for the latter party to correct the defects in the document presented, if they are correctible; the defendant shall have the same right, if the standing of his representative is challenged. If the plaintiff does not correct the defects, the judge dismiss the trial, and if the defect of the defendant is not corrected, the trial shall be continued by default.

III. If defenses consisting in the defendant not having signed the document that is the basis of the action or are based on the falsity thereof, are asserted, they shall be declared inadmissible when the judgment is handed down, when it is evidenced that the debtor received installment payments of the credit, or else, that the latter had maintained the possession of the assets acquired with the proceeds from the credit. The preceding shall stand without prejudice to the fact that the inadmissibility of those defenses results from a different cause;

IV. If the defense of a pending case is asserted, it shall only be admitted when the stamped copies of the complaint and the reply thereto or the schedules of the summons are exhibited with the reply, and

V. If the defense of inadmissibility or error in the proceedings is asserted, the judge shall warn the plaintiff to correct it within a period not to exceed three working days.

The judge, under his strictest responsibility, shall review the reply to the complaint and shall dismiss summarily all defenses that are well known to be inadmissible, or those in respect of which documentary proof is not exhibited or where the evidence directly pertinent is not offered to accredit it.

ARTICLE 1414 bis 11. (Commercial Code)
(Added by Decree of May 23, 2000) The acceptance of the total claim by the defendant shall produce the effect of the matter being passed to final judgment.

The defendant, even when he had not answered the complaint in time, shall have the right to offer evidence at all times until prior to the corresponding judgment being handed down, once and for all.

ARTICLE 1414 bis 12. (Commercial Code)
(Added by Decree of May 23, 2000) Both in the claim as well as in the reply thereto, the parties shall have the obligation of being clear and precise. In those same documents they must offer all their evidence relating it to the facts that they are alleging to prove and present all the respective documents, except as provided in the second paragraph of the preceding article.

ARTICLE 1414 bis 13. (Commercial Code)
(Added by Decree of May 23, 2000) If the evidence offered is against morals or the law or is not adjusted to the provisions in articles 1414 bis 11 and 1414 bis 12, or else refers to impossible facts, obvious falsehoods or not disputed by the parties, the judge shall reject it summarily.

ARTICLE 1414 bis 14 (Commercial Code)
(Added by Decree of May 23, 2000) The judge shall decide on the admission or rejection of evidence in a decree that shall be held as unanswered or unclaimed. In the same decree, the judge shall give hearing to the plaintiff with the defenses asserted by the defendant, for the term of three days and shall stipulate a date and hour for the holding of the hearing of evidence asserted and judgment. This hearing must be held within the 10 days following that in which the period established for the plaintiff to present the evidence in the hearing to which this article refers has concluded.

ARTICLE 1414 bis 15. (Commercial Code)
(Added by Decree of May 23, 2000) The preparation of the evidence shall be the responsibility of the parties, for which they must present their witnesses, experts, public and private documents, interrogatories and other evidence that has been admitted.

When the parties have rendered testimonial or expert evidence to accredit any fact, they must offer it in complaint or responsive pleadings, stipulating the name and surnames of their witnesses and of their experts, as the case may be, and exhibit a copy of the interrogatories by which the witnesses must be examined or the questionnaire for the experts.

The judge shall order that a copy shall be delivered to each one of the parties, in order that upon verification the hearing may draw up a written or verbal cross-examination.

The evidence of visual inspection must be offered with the same opportunity as the preceding.

Upon expert evidence being offered, the judge shall appoint an expert from the experts that he esteems suitable for performing the activity, without prejudice that each party may also appoint an expert to be associated with the one appointed by the judge or to render a separate report. Expert evidence shall be qualified by the judge in accordance with prudent valuation.

If a witness called or a document that has been admitted as evidence solicited, is not presented at or before the due to a cause imputable to the offerer, it shall be declared abandoned, unless a duly proved cause of force majeure exists.

ARTICLE 1414 bis 16. (Commercial Code)
(Added by Decree of May 23, 2000) The judge must preside over the hearing, order the presentation of the evidence admitted and prepared and give an opportunity to the parties to assert that which befits their rights, in writing or verbally, without necessity of it being established in writs in the latter case. If an act is continued, the judge shall hand down a judgment, which shall be appealable only in a higher court.

ARTICLE 1414 bis 17. (Commercial Code)
(Added by Decree of May 23, 2000) Once the value of the valuation of the assets is obtained in accordance with the provisions in article 1414 bis, the following shall be considered:

I. When the value of the assets is less than or equal to the amount of the debt decreed, the respective credit shall be totally settled, without any action or right belonging to the plaintiff consequently to file or to assert against the defendant subsequently, in respect to the contract that is the basis of the action, in accordance with that which is stipulated by articles 379 and 412 of the General Law of Negotiable Instruments and Credit Transactions. In this case the creditor or the fiduciary, as the case may be, may freely dispose of the assets subject to the guarantee, and

II. When the value of the assets is greater than the amount of the debt decreed, the creditor or the fiduciary, as the case may be, once the credit, the interest and the expenses generated are deducted, shall deliver the remainder corresponding to the sale of the assets to the debtor.

Sale at the election of the creditor or fiduciary may be carried out before the judge who handled the case or a notary public, by means of the following procedure:

a) The debtor shall be personally notified of the day and the hour in which the sale of the assets to which the following item refers shall be carried out. This notification must be carried out five days in advance of the date of the sale;

b) A notice of sale of the assets, in which the place, day and hour in which the sale shall attempt to be carried out shall be stipulated, as well as the description of the assets and the sales price, determined pursuant to article 1414 bis, shall be published in a periodical of the locality in which the assets are to be found at least five working days in advance.

In that publication the dates on which successive offers of the assets for sale may be stipulated. Each week in which it is not possible to carry out the sale of the assets, the minimum sale value thereof shall be reduced by 10%, allowing the creditor, upon his election, to obtain the full ownership thereof when the price of those assets is in any of the situations to which item I of this article refers.

A debtor who desires that more publications relative to the sale of the assets should be carried out may do so directly at his cost.

c) Once the sale of the assets is carried out, if the sale price thereof was greater than the amount of the debt, the creditor shall proceed to deliver the remainder to the debtor in cash, cashiers check or by means of a deposit note in favor of the debtor through a notary, in a period no greater than five days, once the amount of the credit granted, including interest and other expenses incurred for the sale has been deducted,

ARTICLE 1414 bis 18. (Commercial Code)
(Added by Decree of May 23, 2000) If the plaintiff does not comply with the provisions stipulated in item II of the preceding article, the judge shall admonish him with the measures of duress established in article 1414 bis 9, and shall order him to pay a penalty equivalent to 100 up to three thousand times the general daily minimum wage in force in the Federal District for each day of non-compliance while the non-compliance continues.

ARTICLE 1414 bis 19. (Commercial Code)
(Added by Decree of May 23, 2000) The creditor or fiduciary, insofar as the delivery to the debtor of the remainder of the resources that should proceed in terms of article 1414 bis 17, item II, from the sale of the assets subject to the guarantee, shall pay a rate of interest equivalent to two times the Cost of Collection in Installments of liabilities denominated in national currency (CCP), that the Bank of Mexico makes known through publications in the Diario Oficial of the Federation, to the debtor for all the time that the delinquency continues..

ARTICLE 1414 bis 20. (Commercial Code)
(Added by Decree of May 23, 2000) In procedures that are brought to trial pursuant to that which is stipulated in this Chapter, collateral issues shall not be admitted and resolutions that are handed down may be appealed only in a higher court, for which the procedure may in no case be suspended, except as provided in the last paragraph of article 1414 bis 10.

The provisions contained in Title III of Book V of this Code shall be applicable in all that is not provided in this Chapter.

The Third Article of the Decree amends Title III of the Credit Institutions Law by adding articles 85 bis and 85 bis 1; amending the first paragraph of article 83 and repealing the second paragraph of article 83 as follows:

ARTICLE 83 (Credit Institutions Law)
In the absence of a procedure expressly agreed upon by the parties in the formation deed of trusts whose purpose is to guarantee fulfillment of obligations, the procedures established in Title III Bis of the Commercial Code shall be applied upon petition of the fiduciary.

Second Paragraph - Repealed.

ARTICLE 85 bis. (Credit Institutions Law)
In order to be able to act as fiduciaries of guarantee trusts the institutions to which items II to V of article 398 of the Law of Negotiable Instruments and Credit Transactions must have an additional minimum capital, for this purpose, determined by the Minister of Finance and Public Credit by means of general provisions, after receiving an opinion from the National Banking and Securities and Bonds Commissions, in accordance with the institution in question, as well as the Bank of Mexico, and with the authorization that the Federal Government shall grant discretionally through the Minister of Finance and Public Credit.

Limited purpose financial companies that comply with the requirements stipulated in the preceding paragraph may only accept trusts whose attached assets derive from transactions inherent to their business objective.

The companies to which items II to V of article 399 of the General Law of Negotiable Instruments and Credit Transactions refer, must administer the trust transactions in the terms that are stipulated for credit institutions in articles 79 and 80 of this Law.

ARTICLE 85 bis 1. (Credit Institutions Law)
The National Banking and Securities Commission and the National Commission of Insurance and Bonds, as the case may be, may suspend the contracting of new guarantee trust operations for a period no less than six months for entities that are condemned to pay on more than one occasion the indemnities to which article 410 of the General Law of Negotiable Instruments and Credit Transactions refers.

The following are the Transitory Provisions of the Decree of May 23, 2000.

First Transitory Provision (Decree of May 23, 2000)
This Decree shall enter into force on the day following its publication in the Diario Oficial of the Federation, except as provided in the following Transitory Article.

Second Transitory Provision (Decree of May 23, 2000)
Guarantee trusts formed prior to the date of entry into force of this Decree shall continue to be subject to the provisions that were applicable at the time of their contracting.

Without prejudice to the preceding, parties who have faculties to do so pursuant to the formation contract of those trusts, may agree that the trusts shall be subject to the provisions of this Law.