Thursday, March 28, 2013

Myths & facts about Panama corporate powers of attorney



Are powers of attorney granted by a corporation made void when its legal representative is changed?

This is irrational because then a corporation would be able to shake the obligations incurred by a previous attorney-in-fact just by switching legal representatives.
A corporation is a type of entity in Panama and as a juridical person that it is, it has to appoint an individual (or natural person) to act on its behalf.   While natural persons can act on their own behalf, Article 73 of the Civil Code specifies that juridical persons like corporations “shall be represented judicially and extra-judicially by the natural persons which the laws, or the respective by-laws, articles of association, regulations or foundation deeds determine; and upon said determination by the persons which a resolution of said community, corporation or association, appoints for said purpose”.
This provision applies also to corporations, which Corporation Law (Law 32 of 1927) specifies in Article 63:
Article 63. Directors may be removed at any time by the votes, cast to that effect by the holders of the majority of the subscribed shares with a voting right in the elections of directors. Officers, Agents, and employees may be replaced at any time by means of a resolution adopted by the majority of the Directors or in any other manner provided by the articles of incorporation or by-laws.
The law does not say that the changing, incapacity or death of a legal representative or director results in the powers of attorney that he granted in the past on behalf of the corporation becoming void.  Being the attorney-in-fact of a power of attorney an agent of the corporation, they are replaced by a decision of the board, not because new directors have been appointed.


Does a corporation which authorizes its Legal Representative in its charter to appoint attorneys-in-fact, also need a shareholder resolution?  The charter of said corporation states:
The Board of Directors may likewise elect other officers, agents and employees it deems convenient. Any person may be in charge of more than one office.  The Legal Representation of the corporation will be exercised indistinctly by the President, the Secretary or the Treasurer, acting individually.  The legal representative may grant General Powers of Attorney in favor other individuals or entities to exercise all powers on behalf of the corporation including, without limitation, to desist, settle, substitute and delegate.

The Panama Corporation Law specifies in Article 65 that:
The Corporation shall have a President, a Secretary and a Treasurer, who shall be elected by the Board of Directors, and it may also have all such officers, agents and representatives as determined by its Board of Directors, by-laws or articles of incorporation, same being elected in the manner established therein.
This is a case which illustrates why it is important to read the charter when determining the scope of corporate authority of a Panama corporation.  In the specific case of the question, the charter has a special clause stating that either one of the President, the Secretary or the Treasurer, acting individually (meaning without the need of a shareholder or board resolution providing authorization), may grant a General Power of Attorney in favor of other individuals or entities to exercise all powers on behalf of the corporation.   These powers include those which other articles of the Civil Code specify requires an express authorization: to desist, settle, substitute and delegate said power of attorney.
The Civil Section of the Supreme Court of Justice has stressed in an unusually candid decision that absurd decisions by public officials should not get in the way of a legal representative as long as he is acting as authorized by the letter of the corporation charter:
It does not seem adequate or correct that the judge, in the absence of direct and express provisions with regard to a specific matter, is allowed to absurdly reason and interpret legal provisions.  And that would be precisely what would happen if the legal representative of a corporation was denied, the right to act on behalf of the interests of said corporation, as long as the acts performed as comprised within the corporate purpose and are related to the own development of the corporation represented.  Remember that in private law matters anything that the law does not prohibit may be done.   If the Law nor the corporate charter of [the corporation] prohibited [the legal representative] to participate in the shareholder meeting of [another corporation] as proxy of [the corporation], the Court does not see a reason to annul the results of said meeting. (Decision of February 13, 1996, MGRevilla vs CDH, S.A.)

Is a Power of Attorney granted by a corporation to be in force from May 29, 2007, to May 28, 2008, illegal because it was granted on May 25, 2007?
Powers of Attorney are forms of mandate, which like any civil obligation may be conditioned in their scope and also their duration.   Many provisions of the Civil Code support the execution of a power of attorney for its exercise in a future date:
  • Article 999 provides that in a conditional obligation the acquisition of rights, as well as their resolution or loss, depend on the event which constitutes the condition.   In the case of the question, the acquisition of rights is conditioned to the elapsing of May 29, 2007, date when the attorney-in-fact will become empowered to exercise, even if the document was granted 4 days before.
  • Article 1002 provides that the condition that an event occur extinguishes an obligation from the date it elapses.   By being the power of attorney granted until May 28, 2008, the elapsing of said date terminates the powers for said attorney-in-fact.   However, some case law provides that mandates are automatically extended if their duration ends without a resignation by the attorney-in-fact or substitution by another one (Decision of August 18, 1991, quoted in Dulio Arroyo, 20 Años de Jurisprudencia de la Sala Civil, Panamá, 1982, p. 300).
  • Article 1010 states that obligations which have a definitive date set for their performance, will only be demanded when said date arrives.  Therefore, the grantor may be able to demand on May 29 that the attorney-in-fact perform the accepted power of attorney.

Legal doctrine acknowledges the legality of conditional obligations and explains that dates can be used to suspend obligations or to resolve or terminate them.  In the specific case of article 1010, “this does not mention a suspension term but the existence of an initial term is given, since it is the moment when the effects of the obligation begin.  However, when the solution or performance of the obligation is delayed, the creditor may not exercise his action before the term arrives, except in the case of what has been made for its own benefit, since if nothing has been established, it is supposed to be for the benefit of both parties.” (Bonifacio Difernan, Curso de Derecho Civil Panameño, Panamá, 1981, p. 138)
When a power of attorney is granted by a corporation, additional rules of the Commercial Code are applicable:
  • Article 580A was enacted in 1997 and in addition to stating that general powers of attorney do not need to be registered unless they authorize changes to title over real estate, also states that Powers of Attorney are valid from valid from the date they are granted in public deed or private document with a date confirmed by Notary Public.
  • However, Article 581 states that when a power of attorney was made according to rules or instructions, these will be integral part of that one.   This means that if this case the document contained a limitation in its duration whereby the attorney-in-fact can only act as such from May 29, 2007, to May 28, 2008, even if the document was granted before Notary 4 days before.  The anticipated execution certainly does not make the power of attorney illegal.

Sample powers of attorney in English with with a future date of effectiveness are available online for Illinois and Utah.
Mandates are terminated by their revocation, resignation of the attorney-in-fact, or death, incapacity, bankruptcy or insolvency of grantor or attorney-in-fact.   This is the reason why in most civil law countries, living wills drafted under Common Law rules need to be redrafted for their enforcement in Civil Law countries.

Do General Powers of Attorney granted by a corporation need to be registered?

No.  A prevalent practice among Panama banks (Caja de Ahorros and others) is to demand that General Powers of Attorney be registered in the Public Registry.  This seems to be a remnant of what was a legal requirement Articles 57 (Section 7) of the Commercial Code and 1776 (Section 7) of the Civil Code for 90 years until Law Decree 5 of 1997 revoked said requirement.   Said Law Decree enacted a Article 580A to the Code of Commerce stating that general or special powers of attorney ("mandato") are valid from the date they are granted in public deed or private document with a date confirmed by Notary Public and may be optionally registered in the Public Registry.
If the choice is made to register a power of attorney, revocation of the registered power of attorney must also be registered unless it is not required from the text of the original document. However, Article 1776 (8) of the Civil Code still requires registering a power of attorney for the sale or encumbrance of real estate located in Panama.
Since corporations are commercial entities the Commercial Code is applicable, so another merchant such as a bank may require under its Article 592 that the written power of attorney be shown.    However, this still does not make compulsory under Panama Law the registration of a general power of attorney.
The First Superior Tribunal of Justice decided an appeal by stating that a deed containing a power of attorney granted between individuals to manage a property (excluding its sale or encumbrance) did not need to be registered because 
“said power limits its representation to matters and acts related with [a specific property in one building] and not to all matters of the grantor, and as consequence of which we can conclude that its registration in the Public Registry is not a requirement for its validity, since it is not a general power of attorney in the terms of the Law”  (Decision of August 30, 1991, IHMojica v JOvadia et al, quoted in Jaime Jovane, Jurisprudencia Civil al Dia, Panama, 1993, 419-420)
In the end, an attorney qualified in the jurisdiction of the corporation and another where the power of attorney will be used must examine all corporate and attorney documents to make a determination on how to proceed.

For more information see:
Legispan law database  http://www.asambl ea.gob.pa/main/LegispanMenu/Legispan.aspx
Infojuridica law database http://infojuridica.proc uraduria-admon.gob.pa
Judiciary database http://www.organojudicial.gob.pa

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