CMS Guide to Consequential Loss in Mexico

No. Under Mexican law, the term “consequential loss” has no specific legal meaning.

The Mexican Federal Civil Code (‘Code’) outlines the legal position regarding damages. Article 2110 of the Code foresees awarding of both direct (daños) and incidental (perjuicios) damages for breach of contract.

The Mexican Supreme Court has stated that whilst the law does differentiate between the words “daños” and “perjuicios”, they both refer to a loss of profit for the affected party. The difference lies in their scope:

• Direct loss (daños) refers to the detriment, damage, loss or impairment on a thing or person infringed by a guilty party, either through wilful intent/deceit (dolo), gross negligence (culpa) or unforeseen circumstances (caso fortuito). 
• Incidental loss (perjuicio) refers to loss of profit as a direct consequence of the breach or noncompliance with contractual obligations.

Damages claims are awarded by a judge and the aggrieved or injured party must prove: (i) the quantum of damages being sought for direct/incidental loss, and (ii) the direct causal link between the loss and the damage caused by the breach of contract.

Given that the Code and Mexican legislation is silent on “consequential loss” as a concept, there is no express prohibition against including such clauses in contracts. However, as clauses giving rise to damages for consequential/indirect loss may result in damages against a party that are not a direct and immediate result of a breach, as stipulated by the Code, enforcement by Mexican courts is unlikely.

The Mexican Supreme Court of Justice has further clarified the requirements for proving damages in its jurisprudence. The Court has established that given the requirement under articles 2108-2110 of the Code that damages must be an immediate and direct consequence of non-compliance with an obligation, there are cases where damages can be demonstrated through proof of the breach itself [1] . This occurs when the breached obligation consists of a monetary payment (where article 2117 automatically provides for interest) or when there is non-compliance with delivery deadlines for movable or immovable property (where the breach itself evidences the patrimonial harm of being deprived of the right to use the asset). However, in other cases, damages do not clearly derive from the breached obligation, and the affected party must specifically explain what the damages consisted of in order to demonstrate their existence.

Furthermore, the Supreme Court has emphasized that the constitutive facts of the damages claimed must necessarily be proven during the trial instruction stage of proceedings prior to the definitive ruling, not during execution proceedings [2] . Only the proof of the economic amount of damages may be reserved for the execution stage, and even then, the court must preferably establish the amount in the ruling itself, or at minimum provide the bases for calculating such amount.

These Supreme Court precedents reinforce the restrictive approach Mexican courts take toward damages recovery, requiring both immediate and direct causation and comprehensive proof of the damages existence during the main proceedings. This further supports the conclusion that consequential loss clauses, which typically encompass indirect or remote damages, face significant enforcement challenges under Mexican law.

The term “consequential loss” is rarely used in contractual exclusion of liability clauses because, if included, the relevant provision may be deemed null and void by Mexican courts. The Code and Mexican jurisprudence establish that damages must be a direct and immediate consequence of the breach; any other type of clause regarding indirect loss is unlikely to be enforced by judges and therefore serves little purpose in contractual arrangements.

More commonly, “damages” is widely used either to explicitly state that damages will apply, or to exclude damages as judicial recourse for a breach of contract.

Please note that Mexican law distinguishes between contractual penalties (penas convencionales) and damages (daños y perjuicios). Contractual penalties, when properly drafted, can provide more certainty regarding liability limits than broad exclusion clauses.

It is common practice in Mexico to explicitly include in contractual agreements that damages will be awarded to an innocent party for any breach of contract. In some instances, the contract will provide for specific heads of loss that will give rise to damages. Therefore, the principle of “consequential loss” (or “special loss”) is not used in standard form contractual agreements.

It is possible for parties to add an exclusion clause stipulating that there will be no damages awarded for the breach of contract. Contracts can also stipulate that certain specific damages will not be awarded in the event of breach of contract.

In the energy sector, there are various template contracts issued by regulatory bodies which include general provisions on damages and provide for exclusion of damages.

Oil&Gas Industry

Example 1 – Production Sharing Contract with the National Hydrocarbons Commission

“Failure to comply with their obligations under this Contract, in the event that in such cases there is a contractual penalty 1, the amount of damages and / or losses shall be limited to the amount of the contractual penalty concerned.”

Example 2 – Licence Agreement with the National Hydrocarbons Commission

“… the Contractor shall pay to the Nation, through the Fund, the corresponding contractual penalties or, if applicable, the losses and damages that the Nation incurs as a DIRECT OR PROXIMATE result of the noncompliance …”

Example 3 – LNG Purchase Contract with PEMEX

“The damages caused by either party to the other or to third parties as a result of negligence, wilful deceit or bad faith will be the responsibility of the party at fault … Under no circumstances shall the parties be liable for indirect damages of any nature, punitive damages or consequential damages that are not proximate / immediate.”

Power Industry

Example – Electricity Transmission Management Contract

“Unless otherwise expressly stated elsewhere in this Contract, the Parties shall only be liable for Direct Damages, so that any other damage shall be, if applicable, the responsibility of the party which caused the damage.”

Practical considerations: When drafting exclusion clauses in Mexico, practitioners should focus on:

• Using clear and specific language that identifies particular types of damages being excluded.
• Ensuring exclusions relate to damages that are not immediate and direct consequences of breach.
• Avoiding overly broad language that might render the entire clause unenforceable.
• Considering whether the exclusion might conflict with mandatory provisions of Mexican law or public policy.

If no definition of “consequential loss” is provided, the courts will follow the rules of interpretation of the Mexican Commercial Code and the Code. If the relevant clause is drafted to explicitly include consequential loss as a head of damages, the courts are likely to: (i) interpret this as an incidental damage clause awarding only damages that arise as a direct and immediate consequence of the breach; or (ii) consider the clause null and void because such consequential damages are not foreseen under Mexican law.

Article 78 of the Mexican Commercial Code and Article 1851 of the Code (of secondary application in this context) stipulate that:

• in the first instance, contracts will be interpreted literally (strict interpretation) according to the ordinary meaning of the words or as defined by the dictionary.
• if such interpretation fails or is unclear, a subjective interpretation applies by which the focus is on the subjective intention of the parties in executing the relevant contract.

The Mexican Supreme Court has established that the Code adopts a theory that affirms the preeminence of the contracting parties will over material expression [3] , meaning that courts must seek to determine the true intention of the parties rather than relying solely on literal interpretation.

More recently, the Collegiate Courts have clarified that when interpreting contracts, judges must resort to the appropriate interpretative rules provided by the legislature insofar as they can reasonably support their decision [4] . The courts have emphasized that while interpretation may initially rely on the literal text, the determination of the meaning and scope of what was agreed cannot be subject solely to the literality of the clauses. Instead, judges must choose the interpretative rule or rules that are suitable for that purpose and can reasonably support the interpretative decision assumed.

This jurisprudential framework is particularly relevant for consequential loss clauses, as Mexican courts will prioritize understanding what the parties actually intended when using such terms, while ensuring that any interpretation aligns with the fundamental requirements of Mexican damages law (immediate and direct causation). If the parties true intention was to exclude damages that fall outside the scope of daños and perjuicios as defined under Mexican law, courts are more likely to uphold such exclusions.

Drafting considerations: Given the interpretative challenges, parties seeking to include loss exclusions in Mexican contracts should:

• Provide explicit definitions of excluded losses rather than relying on terms like “consequential loss”.
• Focus on specific categories of damages being excluded (e.g. loss of profits from third-party contracts, business interruption beyond direct costs).
• Ensure that any exclusions do not conflict with the immediate and direct causation requirements under Mexican law.

Article 1840 of the Code states that parties to a contract may stipulate a fixed penalty for certain breaches of contract (pena convencional) [5] . If the parties include such a stipulation, a party claiming for damages may only do so based on the agreed fixed penalties, as it is understood that the damages were already contemplated in the provisions covering default penalties. The damages are pre-quantified to avoid costly and complex damages calculations at trial.

Fixed penalties can be claimed and awarded without having to prove any actual damages. A breach of contract that corresponds to an agreed fixed penalty is enough for the affected party to make a claim (Article 1842 of the Code).

It is important to note that there is a legal ceiling for fixed penalty clauses. According to Article 1843 of the Code, a fixed penalty cannot be higher either in value or quantity than the value or quantity of the contract’s principal subject matter or consideration.

Additionally, Article 1844 of the Code provides that if the obligation is partially fulfilled, the penalty shall be reduced proportionally, provided that the partial performance is useful to the creditor. This demonstrates the legal preference for proportional remedies aligned with actual harm.

It is worth noting that Mexican courts have generally favored the enforceability of properly drafted penalties (penas convencionales) over broad consequential loss provisions, as the former align with the Civil Code's systematic approach to damages and provide the certainty and immediacy that Mexican law requires.

If consequential loss is included along other heads of loss (i.e. a pena convencional or direct/ incidental loss), the courts would deem the consequential loss clause null and void, because either: (i) a fixed contractual penalty was established, therefore making incidental loss unclaimable; or (ii) the Code explicitly states that the parties will be liable for incidental loss, thus making any other head of loss claim invalid.

Consequential loss exclusion (or inclusion) has no impact on non-damages claims under Mexican law.

Non-damages claims, such as injunctions and specific performance, are awarded in limited circumstances in commercial disputes. Even if such a judgment was awarded, it would not preclude a party from claiming one of the available heads of damages.

Article 1949 of the Code states that the affected party of a breach may choose between demanding the fulfilment of the contractual obligation or terminating the contract, along with any direct and immediate damages the breach may have caused the affected party. Furthermore, the affected party may opt for court-ordered termination if demanding fulfilment proves to be an ineffective remedy.

Practical implication: Parties drafting contracts with consequential loss exclusions should be aware that such clauses will not prevent the other party from seeking injunctive relief, specific performance, or contract termination, as these remedies serve different functions and are governed by separate legal provisions.