The Mexican Supreme Court has set a precedent establishing that unilateral and unjustified termination of a contract — when no express termination clause exists — may result in contractual liability. The Court emphasized that contractual relationships create legitimate expectations, and unjustified early termination can cause significant harm. Consequently, the affected party may claim damages, which must be quantified based on actual losses and lost profits, including foregone earnings and incurred expenses. This ruling directly impacts companies operating in Mexico, especially those in industries that rely on long-term or framework agreements.

Recommended actions

Given that the Mexican Supreme Court has ruled that unjustified early termination of a contract can result in damages if no early termination clause is in place, we recommend taking the following actions´:

• Include clear and explicit termination clauses: Contracts should define procedures, grounds, and conditions for termination to reduce legal exposure.
• Consider mutual waivers of damage claims: Parties may agree to waive damage claims, except in cases of gross negligence or willful misconduct, which cannot be waived under Mexican law.
• Review existing contracts executed in Mexico: Clients should review all ongoing framework agreements to identify contracts lacking express termination clauses or mutual waivers of liability.
• Seek legal review before terminating contracts in Mexico: Before initiating termination, clients should consult legal counsel to assess exposure and confirm whether the contract includes sufficient protections.
• Train legal teams on contractual risk: Ensure legal teams understand the implications of terminating contracts without express early termination clauses, especially in long-term supply relationships.

In depth

The Mexican Supreme Court established a precedent (Amparo Directo 11/2025): a party may incur in contractual liability for unilaterally and unjustifiably terminating a contract when no express early termination clause exists.

The case arose from a dispute between an automotive company and a supplier of protective plastic sheets. The company terminated the commercial relationship without formal notice. The supplier sued, alleging breach of a framework agreement and seeking damages.

The Court confirmed the parties’ free will, provided that the agreements comply with the public order. It held that contracts without specific regulation are governed by general principles and the Federal Civil Code: clear terms must be interpreted literally; unclear ones require analysis of the parties’ conduct to determine intent.

The Court found that the framework agreement, despite lacking a fixed term, created a legitimate expectation of continuity based on the supplier’s investments and operational adjustments. Therefore, it concluded that the company’s unjustified termination constituted a breach, entitling the supplier to compensation for actual losses and lost profits, including foregone earnings and related expenses.

This ruling impacts industries relying on framework agreements, especially suppliers and manufacturers, by reinforcing the need to comply with contractual expectations and avoid arbitrary termination.