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Notarial Acts and Contracts Through Electronic Means

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By legal provision, previously, acts and contracts had to be performed and granted before a Notary Public as a single act. Thus, all the deeds and some proceedings conclude with the famous phrase “before me, in my presence as a single act, to which I attest.-”

Ecuador had to wait for a pandemic that paralyzed a large part of the sectors to realize that technological-telematic means are useful and allied tools in all areas, which energize productive activities, including those who provide legal services.

Now, it is possible to hold mediation hearings by any technological means through the centers authorized by the Judiciary Council and to sign the corresponding minutes with electronic signatures. It is also allowed to hold judicial, arbitration and constitutional hearings by these means. However, certain regulations already did establish the appearance at proceedings and hearings through telematic means before confinement. Since the entry into force of the Organic Law of Humanitarian Support to Combat the Health Crisis Derived from Covid-19 on June 22, 2020, it is possible that certain acts, contracts and notarial proceedings be carried out by telematic, electronic or remote means . For this purpose, the Judiciary Council had to issue the corresponding regulations in which it determines the acts, contracts and proceedings that, because they require the physical intervention or the verification of the intervening parties, cannot be carried out with the appearance of the grantors or participants through the use of telematic, electronic or remote means.

Resolution 075-2020 of the Plenary of the Judiciary Council, issued on July 7, 2020, contains the Regulation for the Progressive Implementation of Acts, Contracts and Notarial Proceedings through the Use of Electronic Means and Reduction of Fees (hereinafter the “ Regulation ”). It established two phases. In the first one, article 3 of the aforementioned Regulation provides the following acts, contracts and proceedings that may be   carried out electronically:

  1. Protocolization of public or private instruments by court order or at the request of an interested party.
  2. Electronic certification of a dematerialized document.
  3. Electronic certification of original electronic document.
  4. Certification of the document materialized from the website or from any electronic support.
  5. Registration of lease contracts with the request electronically signed by the applicant.
  6. Electronic petitions to establish reasons and notes on the margin.
  7. Subscription of minutes of requirements for the constitution in arrears to the debtor party.
  8. Subscription of minutes for the fulfillment of the contract promise, as well as for the delivery of what is owed and the execution of obligations.
  9. Incorporation of companies, provided that the grantors have expressed their express will to grant the deed electronically and they have electronic signatures; and,
  10. Constitution of associations or consortia in matters of public procurement, provided that the grantors have expressed their express will to grant the deed electronically and they have electronic signatures.

All requests for voluntary jurisdiction that are presented before a notary public by grantors who have an electronic signature may be sent electronically. Likewise, notaries may receive the corresponding minutes submitted by the attorneys who require the service, provided they have an electronic signature.

In the second phase, it was established that the Council of the Judiciary will decide on the inclusion of new acts, contracts and notarial proceedings, once the corresponding budgetary allocations are in place. It should be noted that the Judiciary Council, aware of the technological difficulties, did not provide that these acts, contracts and proceedings be compulsorily executed by these means, which implies that it will be optional for users of the notarial system.

Resolution 083-2020 of the Plenary of the Judiciary Council dated July 28, 2020, approved the Operational Instructions for the Progressive Implementation of Acts, Contracts and Notarial Proceedings through the Use of Electronic Means. which made the operational scope of the acts, contracts and proceedings feasible by electronic means, as referred to above. However, so far phase two foreseen in the Regulation has not initiated.

In conclusion, the use of electronic means for notarizations is not a novelty, but the inclusion of other acts and contracts has been a significant advance in favor of the speed of business and in judicial and arbitration activity that have been seriously affected by the pandemic. However, the legislators and the Judiciary Council remain in debt. The former because it gave the Council the power to limit the acts, contracts and proceedings that could be entered by electronic means; and, the latter, because it limited them too much. Let us hope that the Judiciary Council includes other acts, contracts and necessary procedures in the execution of the planned phase two.

Ramón Paz y Miño
Senior Associate at CorralRosales
rpazymino@corralrosales.com

El Comercio – Contractual unforeseeability resulting from the pandemic

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DETAILS

DATE: 12-06-2020

CORRALROSALES IN THE NEWS: 

-Ramón Paz y Miño
-Mateo Zavala

MEDIA: El Comercio

Novedades Jurídicas, the legal supplement of El Comercio, publishes an article by our Senior Associate Ramón Paz y Miño and our Associate Mateo Zavala in which they explain the contractual unforeseenness arising from the health crisis caused by Covid-19. In the “new normality”, the dispute resolution clauses incorporated in contracts will be triggered in the absence of agreements and, therefore, ordinary justice or arbitration will be used.

“In recent decades, the theory of unforeseeability – which is an ideal mechanism for facing adverse effects in the execution of contracts – has acquired greater importance and relevance in the legal world, with the exception of Ecuador, where little or nothing has been said on the matter,” our lawyers put into context in their article.

As they point out, contractual unforeseenness is incorporated in several legislations, such as in Argentina and Colombia, where the objective is to preserve the survival of a contract legally entered into by the parties and where compliance has been affected by external factors beyond their control, which could not be foreseen during the contract negotiation stage.

“In addition to ensuring the full force of the contract, the theory of unforeseeability seeks to ensure fairness in the contractual relationship and to avoid excessive costs for one of the parties, which could affect the performance of the obligations”, explain the authors of the article.

The current situation suggests that the theory of contractual unforeseeability will be used in more than one case in Ecuador. The absence of an express rule that regulates it does not prevent its application, which will make it possible to use reasonability criteria for contractual relations due to events that generate an imbalance between the contracting parties. “This does not mean that the validity of legal security is ignored, much less the reliability and effectiveness of the system, but seeking other solutions will ensure that the performance is fair,” add Paz y Miño y Zavala.

If you want to read the full article, click here

Negotiable commercial invoices in Ecuador

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The most frequent criticisms to the Commercial Code (C. Com.) might be over-regulation, lack of dissemination and discussion. Composed of 1348 articles, 3 general provisions, 1 transitional provision, 5 derogatory provisions and 1 final provision, the Commercial Code (C. Com.) entered into force on May 29, 2019. This was the awakening of a new set of norms that regulate a significant portion of the commercial activity in Ecuador. However, the legislator, irresponsibly, failed to grant a transition period prior to its entry into force, as done with other regulatory bodies. This, in one way or another, prevented traders and businessmen from having a reasonable period of time to inform themselves adequately about the new contract types and to anticipate the impact that it could generate in the development of their business.

Negotiable commercial invoices (FCN, for their acronym in Spanish) are not new. Article 201 of the 1960 Commercial Code, as subsequently amended, provided that: “Commercial invoices containing an unconditional payment order, acceptance of which is signed by the purchaser of goods or his delegate, with the express statement that these have been received satisfactorily, shall be called “negotiable commercial invoices” and shall have the nature and character of securities.”

But, in market practice, few traders issued FCNs, possibly out of ignorance, because they considered them to be too stringent (in terms of their issuance requirements) or impractical.

In recent years, some traders have used the issuance of FCNs as a mechanism to obtain liquidity, including for trading through the country’s stock exchanges. Reports from the Quito Stock Exchange show that FCNs have acquired importance in the local market. According to the information of said institution, in 2018, US$271,777,234 FCNs were traded, as of June 2019 this amounted to US$184,297,068 and in January 2020 US$115,066.25.

Currently, FCNs are (i) sales vouchers, (ii) negotiable and executive securities “when they contain an unconditional payment order, acceptance of which is signed by the purchaser of goods, interests or services or his delegate, with the express statement that these have been received satisfactorily, or that have been tacitly accepted” (Art. 203 C. Com.)

FCNs can be issued in physical, electronic or dematerialized form. If in physical form, 3 copies must be produced, namely, the original for the buyer or purchaser, and two copies for the issuer. Only the first copy is negotiable; the others contain the phrase “NON-NEGOTIABLE”.

For electronic issuance, the issuer shall mandatorily “send or make the electronic voucher available to buyers or purchasers under the conditions, in the timing and by the means established by the country’s internal tax administration entity. Not sending these vouchers, their unavailability or inaccessibility are equivalent to withholding them.” (Art. 204 C. Com.)  The dematerialization of FCNs must be done in accordance with the provisions and regulations of the securities market. This implies a book entry in a system for the registration or booking of the securities. In other words, there is no cardboard representation of the document, as it will be supported by electronic accounting records.

Please note that physical and electronic invoices are traded by endorsement, while for dematerialized invoices the transfer is perfected with registration in the respective bookkeeping system and that, in addition to the requirements determined in the tax regulations, the FCNs must compulsorily contain the following:

  • Be identified as “NEGOTIABLE COMMERCIAL INVOICE”
  • The payment date and place. If payment by installments is established, the number of installments, the due date and the amount to be paid for each of them, as well as the unpaid balance, shall be indicated. The term of payment may not exceed 360 days from the issue of the invoice. (short term security)
  • The unconditional order to pay a certain amount of money
  • The clear specification, in figures and in writing, of the amount to be paid and the currency in which it will be done
  • The express statement by the buyer or purchaser to receive the goods, interests or services to his or her full satisfaction
  • The physical or electronic signature of the issuer of the invoice or of the respective delegates
  • The physical or electronic signature of the buyer or purchaser of the goods, interests or service or their respective delegates
  • The signature of the acceptor contained in the invoice or attached document, except in the case of tacit acceptance, which we will review later.
  • In the case of a physical commercial invoice, information on the endorsements with the identification requirements will be incorporated on the back of the document or attachment

With regard to the acceptance, the Commercial Code will facilitate claims, providing that the buyer-purchaser, his delegate or agent must expressly accept the contents in writing, either in the same document or in a physical or electronic attachment, which must include the date of receipt. In accordance with the provisions of the previous Code, the FCNs will be considered to have been tacitly accepted if, within 8 days of the date of receipt, no claim has been made regarding its contents.

What is important and new is that the Commercial Code recognizes 3 complaint procedures, which must be proven by whoever intends to benefit from this:

  1. The possibility of returning the invoice without acceptance, with the text “cancelled” or with the acceptance tested.
  2. Expressly claim its contents by letter, together with the return of the invoice without acceptance or with the acceptance tested or with the request for the issue of a credit note.
  3. In case of an electronic or dematerialized invoice, the claim will be made through the request for issuance of a credit note or cancellation of the invoice.

On the other hand, in the case of a legal collection action for non-payment events, a claim must be filed in executive proceedings provided that the following requirements are met:

  1. The invoice has not been returned or claimed by any of the mechanisms referred to above.
  2. Its payment is currently due, and the executive collection action has not prescribed.
  3. The obligation is clear, pure, determined and liquid.

In conclusion, the contribution of the Code of Commerce is valuable regarding the regulations that govern FCNs, as it benefits commercial practice and inserts dynamism into businesses. This has become an attractive business strategy to obtain greater liquidity and to have highly liquid securities.

 

Ramón Paz y Miño
Senior Associate at CorralRosales
rpazymino@corralrosales.com