A tenant managed to have a clause that stipulated the payment of late fees equivalent to 1% per day of delay in rent payment, agreed upon as a conventional penalty, analyzed in light of the American Convention on Human Rights (the “Convention”), which prohibits the exploitation of man by man (Article 21.3).
After having experienced setbacks with the trial court and at the appeal stage, the tenant who was sued and ordered to pay said conventional penalty, filed a direct amparo trial. This was based on the argument that their claim had not been addressed.
The federal court that examined the amparo determined that the agreed penalty clause did not constitute usury, as this only occurs in loan contracts. The tenant filed a review appeal that was taken up by Mexico’s Supreme Court (the “Court”).
The Court determined that the prohibition of the abuse of one party by another can be analyzed by a judge in any type of contract regardless of its name or nature, when conventional penalties, default interest, or other stipulations that create an excessive advantage for one party and affect the dignity of the other are agreed upon.
The Court pointed out that Article 21.3 of the Convention did not exclusively refer to usury derived from the collection of excessive interest in loan or credit agreements. It also extends to other types of agreements, even those of a non-commercial nature, including leases.
Although in the past the Court had decided matters in which it determined that usury was not applicable to agreements such as lease contracts, the Court also emphasized that, in agreements other than loans or credit contracts, their analysis can be based on the general prohibition of the abuse of one party by another, which is also covered by the Convention.
However, not every agreed penalty clause or interest stipulated in an agreement necessarily implies the existence of exploitation of man by man. There must also be an excess or disproportion between the duties and rights agreed upon by the parties, in such a way that an economic abuse by one of the parties can be identified.
When one of the parties obtains an excessive benefit by establishing an abusive interest or penalty clause, the dignity of the other party must also be affected so that the exploitation prohibited by the Convention can be confirmed.
The impact on the dignity of the affected party implies a financial subjugation or domination by the person who gains excessive benefit.
The Court returned the case file to the lower federal court to determine whether the interest agreed upon in the lease contract amounted to any form of exploitation and to issue a new judgment in accordance with the indicated guidelines.
From the Court’s ruling, we can derive several conclusions that are highly useful when drafting, negotiating, or enforcing contracts:
a) Loan and credit agreements. Usury arises only in loan or credit agreements where the agreed interest rates (ordinary or default) are excessive or disproportionate for the debtor. In such cases, a judge may equitably reduce them.
b) Other agreements. In all other contracts—whether civil or commercial, such as leases—disproportionate penalty clauses or interest rates will not be examined under usury. Instead, they will be analyzed through the prohibition of exploitation of man by man set forth in the Convention.
c) Lack of equity. Not every imbalance between the rights and duties of the parties necessarily constitutes exploitation. Civil law already provides mechanisms to prevent patrimonial abuse in such situations.
d) Violation of dignity. Where a judge determines that the dignity of the disadvantaged party was also impaired, the contractual provision may be deemed to constitute prohibited exploitation under the Convention.
Below is the Court’s decision (in Spanish)
.
.
.
.
.
