The Unseen Legal Weight: Mastering Promissory Notes ('Letra de Cambio' and 'Pagaré') in Ecuador

Navigating the legal landscape of Ecuador can feel like deciphering a complex code. As an Ecuadorian lawyer and legal consultant based here in Cuenca, I have guided countless expatriates through the intricacies of local law, particularly regarding financial commitments. One area that frequently causes confusion—and significant legal risk—is the use of promissory notes, known locally as a 'Letra de Cambio' or a 'Pagaré'. These are not informal IOUs; they are powerful, enforceable legal instruments. A thorough understanding of their structure, legal requirements, and enforcement is non-negotiable for any expat involved in financial transactions, whether as a creditor or a debtor.

'Letra de Cambio' vs. 'Pagaré': What’s the Difference?

At its core, a promissory note is a written promise to pay a specific sum of money. In Ecuador, these instruments are primarily governed by the Código de Comercio (Commercial Code), while their enforcement falls under the Código Orgánico General de Procesos (COGEP).

• 'Pagaré' (Promissory Note): The most common instrument for expats. It is a straightforward, two-party document: the girado (maker) makes an unconditional promise to pay a sum of money to the beneficiario (beneficiary). Think of it as a direct promise.
• 'Letra de Cambio' (Bill of Exchange): A more complex, three-party instrument. The girador (drawer) orders the girado (drawee) to pay a sum of money to a third party, the beneficiario (payee). This is used more often in commercial trade finance.

For most personal and small business transactions, you will encounter the 'Pagaré'. Both, however, are considered títulos ejecutivos—documents that grant direct access to an expedited judicial collection process.

The Anatomy of a Legally Enforceable Promissory Note

For a 'Pagaré' or 'Letra de Cambio' to be valid and enforceable under Artículo 410 of the Código de Comercio, it must contain specific elements. The absence of any one of these can render the note unenforceable through the expedited process, forcing a longer and more costly ordinary lawsuit.

1. Clear Designation: The document must explicitly state "Pagaré" or "Letra de Cambio" in its text.
2. Unconditional Promise to Pay: The commitment must be absolute ("I will pay...") not conditional ("I will pay if...").
3. A Specific Sum: The amount must be clearly written in both numerals and words to prevent ambiguity. Always specify "dólares de los Estados Unidos de América".
4. Due Date (Vencimiento): The date for payment must be clear. Options include:
   • A la vista: Payable on demand.
   • A día fijo: On a specific, fixed date.
   • A cierto plazo de la fecha: A certain period after the issuance date.
5. Beneficiary's Name: The full legal name and identification number (cédula or pasaporte) of the person or entity to be paid.
6. Date and Place of Issue: Where and when the note was signed.
7. Signature of the Maker: The person obligated to pay must sign. For a company, this must be the legal representative whose authority is registered.

Expert Tip: The single most effective way to strengthen a 'Pagaré' is to have the signatures recognized by an Ecuadorian Notary (reconocimiento de firmas y rúbricas). This act verifies the identity of the signatories and the date of signing, making it exceptionally difficult to challenge the document's authenticity later. This typically costs between $18 and $25 per signature and is a small price for immense legal certainty.

Common Expat Pitfalls to Avoid

I have seen simple oversights lead to significant financial loss. Here are the most common mistakes expats make:

• Treating it Informally: A signed 'Pagaré' is not a friendly handshake. It is a negotiable instrument that can be legally sold or transferred to a third party (an endoso) without your consent, unless explicitly prohibited in the text.
• Ignoring Interest Rate Caps: Parties can agree on an interest rate, but it cannot exceed the maximum legal rate set monthly by the Banco Central del Ecuador (BCE). Charging more than this rate constitutes the crime of usura (usury), punishable with prison time under the Código Orgánico Integral Penal (COIP). Always check the BCE's official tabla de tasas de interés before setting a rate.
• Failing to Include a "Sin Protesto" Clause: To enforce a 'Letra de Cambio' (and sometimes a 'Pagaré'), the law may require a formal 'protesto'—a notarial act documenting non-payment. However, you can add the clause "sin protesto" to the note, which waives this requirement. This makes the enforcement process faster and cheaper, a crucial detail often overlooked.
• The Cuenca Notary Mistake: In expat-heavy cities like Cuenca, notaries are increasingly strict. A common error is showing up with a color photocopy of your passport or cédula. You must present the original, physical identification document. If you are not fluent in Spanish, the notary may require you to bring an official translator at your own expense to ensure you understand the document you are signing.

Enforcement: The Power of the 'Procedimiento Ejecutivo'

This is where the legal weight of a properly executed promissory note becomes clear. If the debtor defaults, the holder does not need to prove the existence of the debt in a lengthy trial. The note is the proof. The enforcement is done via the 'Procedimiento Ejecutivo' outlined in Artículo 347 of the COGEP.

1. Filing the Lawsuit: An attorney files a claim with the court, attaching the original promissory note.
2. Order of Payment (Mandamiento de Pago): If the judge confirms the note is a valid título ejecutivo, they will immediately issue a mandamiento de pago. This orders the debtor to pay the full amount, plus interest and legal fees, within five days.
3. Seizure of Assets (Embargo): If the debtor fails to pay within the five-day period, the creditor can immediately request the embargo (seizure) of the debtor's assets. This can include freezing bank accounts, placing liens on real estate, or seizing vehicles.
4. Auction (Remate): If payment is still not made, the seized assets are publicly auctioned to satisfy the debt.

The speed and power of this process are immense, but it is entirely dependent on the note being drafted perfectly from the start. Any defect can get the case thrown out of the executive process.

⚠️ Legal Alert: When to Stop and Consult an Attorney

Immediately halt any transaction and seek legal counsel if:

• You are asked to sign a blank or partially completed 'Pagaré' (pagaré en blanco). This is a valid but extremely dangerous practice, as the holder can fill in any amount later.
• The interest rate is not specified or seems excessively high.
• You are being asked to sign as a garante (guarantor) and do not fully understand the primary debtor's obligations and financial situation.
• The document contains vague terms, handwritten corrections that are not initialed by all parties, or conditional clauses.
• The transaction involves a significant sum of money. The cost of a legal review is fractional compared to the potential loss.

Conclusion

In Ecuador, a 'Letra de Cambio' or 'Pagaré' is a formidable legal instrument. It is designed to create commercial certainty and provides a powerful, swift path to collection. For expats, treating these documents with the seriousness they deserve is paramount. By ensuring every legal element is meticulously addressed, incorporating protective measures like notarization and the "sin protesto" clause, and understanding the enforcement process, you can protect your assets and navigate your financial dealings in Ecuador with confidence and security.