The Court declares and recognizes the protection of fiduciary assets

The Full Court declares and recognizes the protection of fiduciary assets; and the limitations of fiduciary liability in the exercise of their management

Por: CARLOS VILLALOBOS

We have made a direct reference to the specific points addressed in the ruling of the Full Court of the Supreme Court of Justice, titling the subject matter discussed in each transcription that we subsequently provide from it.

Lack of standing of the trustee, as it is not a party to the contractual relationship

The Full Court expressly states:

“After analyzing the decisions challenged with this injunction, we can appreciate that they give rise to important facts. First, that Mrs. ÁNGELA FREITAS DE PEREIRA is a consumer, and that this person paid COMATECA PANAMÁ, S.A. the sum of B/.80,260.00 for the purchase of house No. 72, and that this legal entity breached the contract by not delivering the sold house within the agreed timeframe. What remains unclear from the resolutions of the specialized jurisdiction is whether the petitioner, GLOBAL FINANCIAL FUNDS CORP. (formerly MUNDIAL SERVICIOS FIDUCIARIOS, S.A.), signed the consumer contract, as the accused official believes that this entity was not part of that contract; however, for their superior, this company was part of the contract. Given this situation, and since we are in the decision-making phase regarding the merits of the dispute, the Full Court proceeds to clarify the contradiction in the decision challenged by this injunction.”

The FULL COURT OF THE SUPREME COURT concludes by stating that, indeed, the trustee never participated in that contractual relationship, thus discrediting the conclusions reached by the Commercial Courts in the challenged ruling, expressing this in the following terms:

“It should be emphasized by the Full Court that, in that contract, there was no mention of the existence of a trust agreement, nor that the property on which the residential area would be built was owned by the trustee; furthermore, in that contract, the petitioner did not intervene, participate, or was mentioned. Therefore, we conclude that GLOBAL FINANCIAL FUNDS CORP. (formerly MUNDIAL SERVICIOS FIDUCIARIOS, S.A.) was not part of, nor did it intervene in, that contractual relationship, which was limited solely and exclusively between COMATECA PANAMÁ, S.A. and ÁNGELA FREITAS DE PEREIRA, both in the signing of the contract and in the receipt of the alleged payments to settle the debt, which discredits the statement made by the Third Superior Court of Justice of the First Judicial District.”

This conclusion highlights the principle of contractual relativity, enshrined in Article 1,108 of the Civil Code.”

Probative evaluation, and the necessary reasoning by the COURT

The ruling emphasizes the work that judges must perform when examining evidence and the necessary comparison between each piece of evidence; ultimately, the sound judgment.

The Court refers to this as follows:

“However, it draws the attention of this Full Court that, according to the agreed contract, the price was to be paid in the following manner: a first payment of USD 6,200.00, within the first 5 business days of signing the promise contract; a second payment of USD 7,800.00, 2 months after the signing of the promise contract, and the balance of USD 66,260.00, through an irrevocable promise of payment letter issued by a local bank upon delivery of the real estate unit, registered in the Public Registry in the name of the promissory buyer.

Another point that should draw our attention is that, to prove this supposed payment, both the accused official and their superior used evidence (payment receipts, the note from July 21, 2014, the statement transferred from RAFAEL PISCITELLI DI BLASI, and the accounting expert evidence presented in the case) that, in the view of this Full Court, are contradictory. However, they did not explain why one took precedence over the other; instead, they asserted that all led to the same result, when that was not the case.

We state the above because the two expert reports presented in the case are not favorable to Mrs. ÁNGELA FREITAS DE PEREIRA, since, although both experts were shown the payment receipts provided by the plaintiff and there is a record of them in the accounting of the company COMATECA PANAMÁ, S.A., the experts did not detect nor could they determine what the financial backing for those receipts was (money, check, transfer, bank deposit, etc.).

In this regard, the expert designated by the defendant, Ciro M. Cano Q., notes: “The concept or explanation of the issued receipts was recorded as received in an account identified with the accounting code 1112, equivalent to SHAREHOLDER ACCOUNT – MARLON SÁNCHEZ, and in the description of the journal entry it says ‘Investment Marlon Sánchez Family.’ We observe that the journal entries are contained in COMATECA’s accounting, but we do not have documentation such as bank statements, deposit slips, credit notes, bank transfers, ACH receipts, that specifically indicates and proves the cash deposit into the company’s bank accounts, regardless of what the system record shows.” (The Full Court highlights this), which, even with this expert testimony, casts doubt on Mrs. ÁNGELA FREITAS DE PEREIRA’s consumer status, as this alleged payment was recorded in the accounting of the defendant COMATECA PANAMÁ, S.A. as an “investment” from shareholder Marlon Sánchez, a member of the Board of Directors of COMATECA PANAMÁ, S.A. (president), and who also signed the loan contracts with the bank, as well as the trust agreement, thus masking or disguising a claim from a shareholder against the company he is or was part of as a consumer protection lawsuit.

On the other hand, the expert appointed by the Court, Flor de María Arosemena F., in her report states that the receipts show a different date than the records found in the books, all dated 16-07-2014, while the accounting records correspond to the dates 21/01/2014, 03/02/2014, and 04/02/2014. Additionally, the receipts do not show the signature of the person responsible for receiving the money and were recorded via journal entry rather than as a money entry, meaning, deposit or transfer.

The professional adds: “After reviewing and analyzing the received documentation, it was determined that records of the receipts found in ÁNGELA FREITAS DE PEREIRA’s file affect two bank debit accounts (BANCO MERCANTIL DE PANAMÁ and BBVA/BAC) and one account receivable from shareholder Marlon Sánchez. It was determined that these accounting records do not support an incoming payment; incoming payments should be backed by deposits or bank transfers, and in this case, no such entries could be confirmed. In COMATECA PANAMÁ, S.A.’s accounting, no documentation was found confirming a deposit of money in Banvivienda or Banco Mercantil for the payment of house No. 72 in the PH Las Lajas Residential Project. Bank reconciliation, bank statements, bank deposits, or any other document supporting the incoming money was requested, but none were available,” which once again highlights the lack of financial backing for these receipts and that, in any case, they represent a credit or account receivable from shareholder Marlon Sánchez.”

These aspects, in the view of this Full Court, should have been confronted by the accused official, as well as by his hierarchical superior, when motivating their decision, which did not happen.

Importance of the preliminary hearing in cases where this procedure exists

“Additionally, we must bear in mind that the consumer protection jurisdiction has a management model that allows it to detect from the outset the points to be resolved through the preliminary hearing, considering that the alleged payment for the house and its entry into the trust was definitely an issue that the judge of the case needed to resolve.

The duty to determine what points need to be resolved, starting from the preliminary hearing, should not be understood as merely complying with a procedural formality where the judge simply points out that all facts not accepted by the opposing party must be proven, as this is not the purpose of this procedural mechanism. On the contrary, the points to resolve are the moments when the judge must properly direct the process and the discussion in order to determine which necessary and relevant events need to be resolved [by the judge] to render a fair and effective judgment that resolves the conflict between the parties in a timely manner. This requires the judge, from the outset, to immerse themselves in and/or understand the dispute that must be unraveled through the proper and reasonable mental exercise that every judge must possess.”

The purpose of the preliminary hearing is to determine the points to be resolved in a case.”

On contractual responsibility in consumer relationships

In this reasoning, the Court summarizes how contractual responsibility should be attributed in the consumer relationship, in this case related to the management of a fiduciary.

“Although the development of specialized case law on this topic is commendable, we believe that it should not be interpreted as a carte blanche imposing objective and/or joint responsibility, holding anyone with even the slightest involvement in forming the consumer relationship or in the production of the sold goods or offered services responsible.

Thus, based on an analysis of that case law criterion, we can see that it requires, to determine the responsibility of a third party not signing the consumer contract, such as fiduciary companies, that this entity be part of the transaction or the business scheme, or the negotiations for the promotion and sale of the properties on which the real estate project will be developed. In other words, an active participation and reporting of benefits within the consumer relationship is required; which necessarily implies that the judge evaluates the behavior of the defendant. That is, it is not enough to simply prove that the company is the fiduciary of the real estate project.

This analysis, required by the specialized case law itself, does not appear to have been carried out in the contested decision, making the mistake of assigning responsibility to the petitioner simply by virtue of their fiduciary status, based on an alleged joint responsibility.

Note that the analysis of the fact attributed by the plaintiff in that case was not addressed, specifically, her claim that the fiduciary should be held responsible for being the “owner” of the parent property where the project was built, for being the “owner” of the promised property for sale, and because she allegedly had consented to the contract signed between Ángela Freitas de Pereira and COMATECA PANAMÁ, S.A.; the latter fact was not proven in the case, not even indirectly.

We must make it clear that the fiduciary is not the owner of the property; rather, a trust estate is created, in which the fiduciary manages it for the purpose it was established and for the benefit of a beneficiary.

In this sense, while fiduciary companies can incur liability, this liability must be based on direct responsibility and not joint liability, as joint liability must be expressly established by law, especially when no contract has been signed with the consumer. Thus, it must be proven what the fiduciary company’s involvement has been in order to attribute civil responsibility, whether it received the money, failed to deliver the goods it was supposed to deliver within the relevant period, or simply failed to deliver them without justification, was negligent in managing the trust, or was involved in the promotion and/or marketing strategy of the project. In other words, there must be negligence or participation on their part in the formation and/or development of the consumer relationship, either by action or omission.

This can be summarized as follows: for this case, the attribution of responsibility is based on the existence of fault on the part of the agent to whom responsibility is attributed, and not on an objective basis, as was ruled in the judgment that has been overturned in favor of the fiduciary.”

DOCTRINE OF THE PLENARY COURT, regarding the figure of the TRUST

Here is the doctrinal expression of the Plenary Court regarding the figure of the trust in Panama:

“To approach this analysis, the following question must be considered: Can a trustee be considered a supplier under consumer protection legislation? Based on the fact that the essence of the trust consists of the following formula: ‘A tenet ad opus B’ (A holds for the benefit of B).

To answer this question, we must unravel what the figure of the trust is in Panama, determine the participation of the party seeking protection in the consumer relationship for which responsibility is being demanded, and whether that participation allows them to be considered a supplier of the promised property for sale.

THE TRUST

The trust, as it is known in Panama, is a figure foreign to Roman law and continental European law, as it is inspired by the Anglo-Saxon Use or Trust, which originated in England.

Regarding this figure of English law, the person who creates or establishes the trust — the settlor — is called “trustor,” “settlor,” or “grantor” in the case of an inter vivos trust, while in Panama, they are known as the fideicomitente. The sine qua non requirement of every settlor or fideicomitente is to be the owner of the property subject to the trust or fideicomiso, as well as having the capacity to create it and to transfer or dispose of the property subject to the trust.

The trustee is the individual or entity who receives the transfer of the title of ownership from the settlor. This person must have the legal capacity to receive the property and carry out the duties of the position.

Through the trust, a fiduciary relationship is created between the trustee and the beneficiary of the trust. The trustee has the duty and obligation to act for the benefit of the beneficiaries and must refrain from taking advantage of the profits from the trust for their own benefit.

The person or people for whose benefit the trust is established, as mentioned earlier, were known in common law as cestui que trust. In modern Anglo-Saxon law, this term has fallen out of use in favor of the term ‘beneficiary.’ In Panama, this figure is known as the fideicomisario or beneficiary.

For a trust to exist, the trust’s object must concern a property, which can be movable or immovable, tangible or intangible, or even an equitable interest, which will form the trust estate.

The settlor can establish, regarding the trust’s estate, all the terms and conditions concerning the duties of the trustee and the rights of the beneficiaries, as long as they do not contravene any important legal provision or trust law policy.

To fulfill the trust’s purposes, the trustee has broad powers, like those of any property owner. Their primary function is to manage the trust fund in good faith, acting as a prudent person with care, caution, skill, and considering the trust’s purposes, the distribution requirements, and other circumstances of the trust.

It is fundamental in any trust that the trustee is obligated to keep the trust’s funds segregated and to identify the property subject to the trust in such a way that it is separate from their own assets and any other funds the trustee holds in custody. The reason for this is precisely the protection of the funds from the trustee’s creditors, who also cannot use those funds for their guarantees. Additionally, the trust’s funds do not enter the trustee’s inheritance or marital estate.

One of the most significant peculiarities of the Anglo-Saxon trust is the so-called tracing, which makes it possible for property that was transferred against the terms of the trust to be recovered, even against the trustee’s creditors, unless there is a third party acting in good faith involved.”

Further on, on page 30 of the ruling, the Court directly refers to Panama’s Trust Law.

The trust assets constitute an autonomous and independent estate from the estate of the settlor, the trustee, and the beneficiaries, as a differentiation of estates is carried out. Exception to inalienability: possibility of a ruling against the trustee for direct responsibility

The Plenary of the Court states in the ruling:

“Both in the original version of 1984 and in its 2017 version, this Article 15 establishes that the trust assets constitute an estate that is autonomous and independent from the estate of the settlor, the trustee, and the beneficiaries, considering the trust assets as an estate of affectation, preventing these affected assets from being seized or garnished due to personal debts of these individuals.

However, we cannot conclude that these assets are in an unreachable bubble, as the law allows their seizure and garnishment when:

1. The obligation incurred or damages are caused in connection with the execution of the trust;
2. By virtue of liens established over the trust assets;
3. By third parties, when the assets have been transferred or withheld fraudulently to the detriment of their rights.

Therefore, these debts, generated by the constitution and/or execution of the trust, must be satisfied as prescribed by this same regulation, meaning through the trust estate itself or as a consequence of fulfilling the purpose set by the settlor.

Now, with the new reform, it was expressly included that the trustee is not liable for the debts of the trust it administers when the law established that the trustee’s assets constitute a separate estate from those it manages in trust, and these assets cannot be seized or garnished for obligations incurred by any of the trusts it administers; however, an exception to this general rule was established when the obligations were duly contracted by the trustee in the exercise of its activity, meaning an active participation of the trustee in the obligation being claimed is required.

Now, if the trust assets are not sufficient to satisfy the debts that, by law, are to be covered, the excess must be covered by the settlor, unless otherwise agreed.

In conclusion, although the general rule states that the trustee is not liable for the obligations of the trust it administers and vice versa (the trust is not liable for the trustee’s personal debts), the law itself contemplates exceptions to this general rule, meaning it is possible to condemn the trustee personally, but for direct responsibility, when the obligation was contracted in the exercise of its activity and not in a solidarity manner (as a guarantor of another person), which includes the possibility of seizing or garnishing the trustee’s assets when the obligation affects or arises directly from the trust, but with an active conduct in its role as administrator of the trust assets.

In the opposite case, these companies may only be condemned in a fiduciary capacity, with their responsibility being limited or supported by the assets that make up the trust.

Now, since the law establishes the creation of an estate of affectation composed of the trust assets, autonomous and independent from the estates of the people involved in the trust contract, it is necessary to determine: How is this differentiation of estates carried out?

In conclusion, although the general rule states that the trustee is not liable for the obligations of the trust it administers and vice versa (the trust is not liable for the trustee’s personal debts), the law itself contemplates exceptions to this general rule, meaning it is possible to condemn the trustee personally, but for direct responsibility, when the obligation was contracted in the exercise of its activity and not in a solidarity manner (as a guarantor of another person), which includes the possibility of seizing or garnishing the trustee’s assets when the obligation affects or arises directly from the trust, but with an active conduct in its role as administrator of the trust assets.

In the opposite case, these companies may only be condemned in a fiduciary capacity, with their responsibility being limited or supported by the assets that make up the trust.

Now, since the law establishes the creation of an estate of affectation composed of the trust assets, autonomous and independent from the estates of the people involved in the trust contract, it is necessary to determine: How is this differentiation of estates carried out?

In this regard, Articles 31, 35, and 21 of Law 21 of 2017 impose as an obligation and duty for trustees to maintain a numbered record, in sequential form, of each of the trusts they manage, detailing the assets that are part of the trust estate. Likewise, they have the duty to keep the trust assets separate from their own (of the trustee), protect the trust assets with the resources of the trust from third-party actions, from the beneficiary, and even from the settlor, which is why the trustee can exercise the rights and actions that correspond to them and act in the name of the trust in administrative and judicial processes; and, most importantly, they must keep separate accounting for each trust estate.

This accounting information for each trust must include the assets or goods that make it up, its financial obligations or liabilities, income and expenses, and be updated, with supporting documentation such as contracts, invoices, receipts, and any other necessary documentation to substantiate the transactions of each trust estate.”

Guarantee Trust. Direct and not Joint Responsibility of the Trustee. Importance of this Figure in the Banking Sector. Inappropriateness of Holding the Trustee Responsible for Construction Defects.

“A guarantee trust is when the client (settlor), who is a debtor of an obligation, usually a credit, secures that commitment by transferring an asset, which remains in fiduciary ownership in the name of the trustee, who holds it for the benefit of the beneficiary (Bank or creditor), so that, if the debtor fails to fulfill the obligation, the trustee fulfills the obligation through the trust assets. According to statistics from the Superintendency of Banks of Panama, as of March 31, 2023, 98% of trust contracts in the market are guarantee trusts, of which about 90% secure consumer loans (cars, homes, and mortgages). Of all trust contracts established in Panama, 98% involve individuals and 2% involve legal entities.

But what we do consider is that it is not enough to hold the trustee responsible based solely on the condition of being a trustee, as there is no rule that obliges these companies to take responsibility for the company that hired their services to administer a trust.

As stated earlier, although a fiduciary company may incur liability, it must be based on direct responsibility and not joint liability, as solidarity requires explicit legal provisions, especially when no contract has been signed with the consumer, and doctrinal criteria alone are insufficient to support such solidarity.

Regarding the above, the Plenary wishes to emphasize that, with respect to the figure of the trust, we must consider that it is a tool that has facilitated the financial and construction growth of the country, and we must moderate the broad criterion given by the consumer protection jurisdiction in this context, as the ruling could imply that the fiduciary would always be liable, regardless of participation, simply by its existence (even without any involvement), which could even extend to claims related to construction defects, which is not appropriate.

Thus, the banking sector has found a commercial figure to facilitate financing for investments, where the trustee manages all resources allocated, in this case, for construction, providing legal security to the consumer.

Given the considerations above, the Plenary of this Justice Corporation believes that, in the case under review, there has been a violation of the guarantees of the complainant contained in Articles 32 and 47 of the Political Constitution.”