What are hidden product defects?

They are non-visible defects prior to the sale of a product that prevent or diminish its use for the intended purposes. In case that the buyer has known them he would not have bought the product or have paid less for it.

What does the law state as to hidden defects?

Sellers are responsible for hidden defects of the product sold. Buyers may early terminate the sale contract and request the payment of expenses, or asked for a price reduction.

If buyers prove that sellers knew the hidden defects and did not disclose so to buyers, the latter must be awarded damages, if they choose the early termination.

The above rules apply to B2B sales.

What does the Consumer Protection Law regulate?

The Consumer Protection Law (“CPL”) aims to protect consumers’ rights before suppliers of goods and services.

This law applies to final buyers of goods and services as well as suppliers that sell to consumers.

The CPL has provisions that seek to balance the contractual relationship between suppliers and consumers.

While in a B2B transaction, it is expected that the parties freely agree the terms and conditions to which they abide by; on the other hand, the relationship between suppliers and consumers is unequal, and consumers do not always have the same leverage to negotiate.

How does the law seek to balance suppliers and consumers contractual relationship?

The CPL seeks to balance such inequalities by establishing rights and obligations in the law.

Article 82 of the CPL is a clear example of that. It establishes that when the product acquired by the consumer has hidden defects that (i) limit the intended use of the product, (ii) diminishes the quality or the possibility to use it, or (iii) do not offer the expected safety and reasonable use; then the consumer may demand:

(a)   The return of the product or service; or

(b)   The early termination of the contract or a price reduction.

Regardless of the consumer’s choice, he may ask for a bonus or compensation.

If the consumer chooses to early terminate the contract, the supplier shall pay him back the consideration plus interests. The above is independent of the damages that the supplier might have to cover to the consumer.

What does the reform of article 82 of the CPL imply?

On May 24th, 2023, the Senate received a bill proposal intended to add a fourth paragraph to article 82 of the CPL to set forth that: “when the consumer offer minimal evidence on the existence of hidden defects, there is a presumption in his favor, having the supplier the burden of proof to demonstrate otherwise.[1]

The Bill is pending to be discussed in the Senate, and if approved it will be sent to the Chamber of Deputies for its analysis.

If the Bill is passed, what benefits will it bring to consumers?

In a trial, who makes a statement of fact is obliged to prove it. However, the Bill promoters seek to transfer the burden of proof to suppliers.

That is, it will be sufficient that consumers “offer minimal evidence” on the existence of hidden defects, to set the presumption in their favor that they actually exist, and the suppliers will have to prove otherwise.

The Bill promoters relied on a Supreme Court decision where a consumer demanded the early termination of a purchase and sale agreement of a car due to hidden defects and mechanical failures.

The consumer requested that the supplier should be the one that proves the nonexistence of hidden defects, given that the consumer was in a weaker position before the supplier on the knowledge of the car.

The First Chamber of the Supreme Court decided that the consumer only had to offer minimal evidence to prove what the hidden defects consist of, having the supplier to prove otherwise.[2]

The Bill mirrors the Supreme Court’s criterion. The consumer, in principle, would not have to prove the existence of hidden defects, being enough if he offers minimal evidence for such purposes.

What could the supplier do to defend his position?

If the Bill is passed, it does not necessarily mean that suppliers shall prove that the product sold did not have hidden defects.

The above Court decision was applied to a specific case and the offer of minimal evidence disclosing the existence of hidden defects, has limits.

The Bill is drafted in very abstract and broad terms because it copied almost literally the Supreme Courts’ decision.

Ultimately, the scope of the Bill will be construed and decided by Mexican courts. It will be up to the courts to conclude whether the minimal evidence offered by the consumer is sufficient and appropriate. By passing the Bill, suppliers will not automatically be forced to prove without any questions, that the product did not have hidden defects.

Therefore, there are strong arguments to defend the suppliers’ position in a trial, given how the Bill is drafted and what the Supreme Court concluded by establisging limits to to what “minimal evidence” entails.

In case of any questions or comments, feel free to contact me at this email address info@ceglegal.com

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