The main objective of this article is to draw a picture of the recoveries scenario in the Panamanian jurisdiction, and to establish the proper procedure of documenting a credit in order to be judicially enforceable in the Panamanian Courts.
Besides the standard risks incurred when having a debtor abroad, such as his insolvency or bankruptcy, the biggest concern a creditor should have when collecting a credit abroad, is whether the debt is well documented in accordance to the law of the debtor’s country, hence allowing the creditor’s rights to be more easily enforceable.
By virtue of the Panamanian Judicial Procedure Code, there are basically two proceedings in order to claim the payment of debt on the Panamanian Courts, either through a Declaratory Judgment or an Executory Judgment.
A. Declaratory Process
The Declaratory Action, as regulated in the Panamanian Judicial Procedure Code, pursues a judgment which determines the rights of the parties, with the Court’s faculty to order the compliance of the obligation by the party in default and to award damages to be paid in favour of the affected party. The execution of a declaratory judgment, ordering the compliance of the obligation (i.e. payment of debt) or granting damages, can be performed in the same declaratory process (plaintiff has one year to request the execution of the judgment, counted as from the date of the declaratory judgment), or through a separate Executory Process.
An Ordinary Process has the characteristics of being a process with numerous steps, long terms, evidence presentation and assessment proceedings, various pleas, exceptions and defences available which may be used by the defendant in a dilatory manner, etc. All these factors tend to make the Declaratory Action a long and expensive battle for a creditor trying to recover his credit, but it is the only option a creditor has when the debt is not duly documented and secured in accordance with article No. 1613 of Panama’s Judicial Proceedings Code, which is the article that establishes which public and private documents can give rise to an Executory Process.
Once the Declaratory Judgment is issued by the First Instance Court in favour of the creditor, and taking into account that the debtor can appeal the first instance judgment, the debtor has six (6) days after judgment is issued to comply with the Court order to pay. If the debtor fails to comply with the payment at the period established above, the creditor has the statutory right to ask for an execution of judgment to the Court; and by denouncing the existence of assets belonging to the debtor, he will obtain as part of the same Declaratory Process a Court’s writ of execution for the seizure and judicial sale of the debtor’s assets.
The right of the creditor to apply for an execution of judgment at the Declaratory Process extinguishes after one (1) year counted from the writ of execution’s issuance date. Hence, once this period has elapsed without the creditor enforcing his right, he would have to file an Executory Process autonomous from the previous Declaratory Process to execute the debt recognized in the Declaratory Judgment.
B. Executory Process
The Executory Process does not have the same requirements, structure and procedural characteristics as the Declaratory Process. The purpose of this process is to obtain the compliance of a legally recognized right (obligation to give-e.g. money, to do, or not to do) by compulsory means.
The Executory Process can be resorted to when the right of the creditor arises from an act importing confession of judgment containing a privilege or mortgage in his favour, or when he demands the execution of a Declaratory Judgment. Therefore the Court does not have to assess and decide which party is in breach of contract as in a Declaratory Process, instead it only has to confirm that the document (“executory title”) represents a matured and due obligation, and if so, to proceed with the issuance of a writ of execution ordering payment to the plaintiff.
From the procedural point of view this Process has significant differences. In the Declaratory Process the plaintiff bears the burden of proof to evidence that his claimed right exists against the defendant, and hence the onus probandi would not be reversed to the defendant until such right is proved; meanwhile in the Executory Process the claimed right of the plaintiff has already been evidenced by the document, so the burden of proof is bared by the defendant as to prove that the claimed amount has already been paid or prescribed.
Another difference between the Declaratory and Executory Process is the nature of the seizure or attachment. In the Declaratory Process the attachment is of a preventive nature to guarantee the results of the process, hence a bail has to be deposited by the plaintiff at Court as to cover any maintenance or damage to the seized good, and in the Executory Process the seizure of assets signifies the initiation of the execution phase against the condemned debtor in order to proceed with the public auction or delivery of the assets to the plaintiff, therefore a bail is not needed.
B.1. The Executory Title
For an Executory Process to be filed by a creditor, the debt has to be legally documented in accordance to our Law in what is known in our jurisdiction as “executory title”. The Panamanian Judicial Procedure Code establishes in Article 1613 which documents are considered “executory titles”. Article 1613 establishes a list of eighteen (18) documents considered “executory titles”, due to the importance of such requirement we proceed to give a glimpse of the most relevant ones:
1. The writ of execution rendered by another Court in a Declaratory Process.
2. Judgment issued by an arbitrator(s).
3. Public Deeds (containing an obligation to give, to do or not to do).
4. Any judicial act by which a person is obliged to pay a stipulated amount to another person (e.g. Money Judgment).
5. Any type of private documents, as long as the debtor has recognized his signature before the Court, or has been declared confessed of the authenticity, or has presented such document to a Public Notary for its certification or authentication, or if the debtor’s heirs recognize his signature once the debtor is dead.
6. The unpaid lease rents evidenced by the unpaid invoices, together with the respective lease agreement; or if such documents comply with the characteristics described above.
7. The document by which, in accordance to our Commercial Code, liens can be claimed to the cargowner, shipowner or charterer.
8. The cheques not honoured by the paying bank, for lack of funds or when the drawer of the cheque does not have an account at the paying bank.
9. Negotiable Documents, against the drawers, grantors, endorsers, guarantor and any other party bound by it.
10. The bonds and their interest coupons.
11. The certifications issued by banks and savings and loans associations, by which these entities stipulate the credit due established by the accounting books against the debtor, when such certifications are duly revised by an Authorized Public Accountant.
12. Solidarity Promissory Notes, even though no specific amount is expressed on them, provided however that such document fulfils the requirements established in point 5, and that the Promissory Note has the nature of an accessory document to an “executory title” in accordance to article 1613.
13. Any other title which the law grants it the nature of “executory title”.
As we can see, the “executory title” nature of a document is granted by statutory means, thus a document not complying with such description and requirements stipulated by Law does not qualify as an “executory title” and therefore cannot give rise to an Executory Process. This seemingly limited list leaves the option to statutorily expand the documentation considered as “executory title”. The intention of the Law is to prevent the reckless use of the Executory Process against alleged debtors, and securing the fact that the execution of a debtor’s assets will be carried on in benefit of a duly recognized and existent right of the creditor.
In order for the documents listed above to be considered an “executory title” by the Courts, the documents (enlisted in article 1614) have to represent a clear obligation and a matured liability to give (e.g. to pay), to do or not to do a determined thing. In addition, the document has to comply with the proper formalities and with the legal requirements of the jurisdiction where it was issued.
The “executory title” has to be a prima facie evidence of the creditor’s right by itself without the need of another document; nonetheless article 1614(5) allows an exception when the payment obligation is triggered by the previous compliance of another condition, by demonstrating through the document that the previous condition has occurred.
The Panamanian Courts have maintained the view that for those liabilities arising from the compliance of a previous condition, it shall be permissible to present in the Executory Process those documents required to evidence the compliance of such condition no matter how many there are. It has been held that when various invoices are delivered to the debtor without the authenticity of the contents been refuted by him; the Courts shall accept the statement of account as an executory title, which comprises the due amounts stated in the invoices, only when same is accepted by the debtor by virtue of stamping his signature on it.
The private documents are only considered an “executory title” when the debtor’s signature is recognized on Court or when the document has been authenticated by a Public Notary. The Courts cannot presume the authenticity of a private document by its mere existence, so the defendant has to recognize his signature on the document allegedly issued or signed by him, either by confessing the authenticity before Court or if it is already authenticated by Public Notary.
If the debtor refuses to recognize his alleged signature in the document, the Law grants the plaintiff the right to request through an exception the presence of a handwriting expert to determine the authenticity of the signature. Another possible reaction from the alleged debtor is refusing to appear before Court in order to recognize the signature. In this situation the Law stipulates that after the second summons issued by the Court for the debtor to appear without him doing so, the Court can declare the document and signature as authentic and proceed with the Executory Process.
B.2. Executory Process
Once the Executory Action is filed, the Court would issue a writ of execution ordering the debtor to comply with the payment of the owed amount, including the interests accrued until the cancellation of the debt, and the disclosure under oath of the assets under his ownership to secure the payment through them if necessary, to this effect a refusal of debtor to issue the declaration will result on a Court’s sanction for Contempt of Court. As the writ of execution does not possess the condition of “res judicata”, the defendant can oppose it by means of an appeal, an objection, a defense, or through an ordinary proceeding aiming to revoke the effects of the writ of execution.
The option to oppose the writ of execution through an ordinary proceeding has been highly criticized for being considered contradictory of the Executory Process nature, emphasizing that the writ should not be opposed through a Declaratory Process to clarify whether the debt is due and matured or has been already satisfied, when the defendant already has the opportunity to prove this through the exceptions mentioned below.
After the writ of execution is served on the debtor, he has two days to attend to Court to pay the claimed amount; not complying with the payment during this period of time allows the Court to order the seizure or attachment of the debtor’s assets declared by him or denounced by the creditor, for their subsequent deposit and appraisal by the Court. Non-payment of the total amount claimed will enable the Court to order the foreclosure sale or public auction (depending on the nature of the asset) of the assets seized, to deliver the results to the plaintiff and, if the claimed amount is totally satisfied, to declare the closure of the lawsuit. If payment by the debtor, or the amount resulting from the public auction or foreclosure sale, does not satisfy the entirety of the claim, the creditor has the right to denounce before Court other debtor’s assets that to his knowledge may exist in order to cover the remnant amount of the debt.
As we stated earlier the burden of proof is bared by the defendant, having the option to escape an execution against him (e.g. by proving the payment of the alleged debt or the compliance of the obligation); the way to achieve this is through an objection or defense stipulated by law, being the most relevant ones: payment of the debt, acceptilation of the debt, novation of the obligation, compensation of the debt, extinctive prescription, among others. The objection proceeding has its own period for producing evidences and allegations. The judgment deciding the objection or defense can be appealed by the parties, which even though the Law establishes that it has the characteristic of not suspending the execution of judgment, the jurisprudence has manifested that the appeal should suspend the execution of judgment, or otherwise it will lead to an imaginary appeal as the assets may already be sold through the Public Auction or delivered to the plaintiff by the time the Court of Appeals renders judgment.
We have emphasized the juridical means of obtaining payment on a due credit, principally the Executory Process for the reasons already stated, as the out of Court options to obtain such payments are through negotiations with the debtor. Being the Executory Process a summary proceeding and one of execution, the time frame for obtaining a judgment is much shorter than the Declaratory Process (and therefore costs and fees) and the chances for obtaining a satisfactory result are greater.
The most important factor to bear in mind when a creditor wants to pursue an Executory Process against his debtor in the Republic of Panama, is to document the debt as stipulated by our Judicial Procedure Code in order to be considered “executory titles”. As we have seen an invoice or statement of account by themselves, are not considered “executory titles” unless they are accepted or signed by the debtor
So irrespective of the service provided or goods sold by the creditor, he should be aware that whenever the due credit is rising it would be preferable to make the debtor sign one of the documents regarded as “executory titles”, be it a Promissory Note, Bill of Exchange, or any other of the documents described above; unfortunately the good faith of a buyer in the international trade is not always present, and therefore a seller of goods or provider of services has to take all the preventive steps in order to satisfy his credit. When creditor has a pending delivery of the goods or services provided to debtor, is usually the best occasion to pressure the debtor into signing a document evidencing the debt existing up to that moment before dispatching the goods or render the service. Last but not least, for any international transaction held with somebody from an unfamiliar market, always try to obtain professional advice.