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Notarial deeds with direct enforceability clause and their pitfalls

Notarial records in which the debtor agrees to direct enforceability are a popular instrument among creditors which improves the recoverability of claims towards the debtor, and facilitates their actual collection. However, mistakes are not infrequently made when drawing up such deeds, which then result in a faulty execution title that cannot be used for the enforcement; obviously, this frustrates the primary purpose for which they were intended in the first place.

If a debtor refuses to repay their debt voluntarily, standard procedure requires that the creditor must first obtain what is known as an "execution title" (or enforcement title) before they may proceed and initiate the involuntary recovery of their claims in a debt enforcement procedure. This execution title will usually take the form of an enforceable court judgment, containing the debtor's obligation to pay a specific debt. In order to attain such a judgment, the creditor must first go through a – frequently lengthy and rather expensive – court trial with uncertain outcome. In fact, a number of creditors prefer not to go after certain debtors at all, because they do the math and find that it makes no economic sense to collect the debt, given the costs of recovery.

A popular method how to sidestep the need for a court trial and to simplify (and bring down the costs of) the recovery of receivables from debtors is to draw up a notarial record with a direct enforceability clause in which the debtor affirms that they agree with the use of the notarial record as an execution title, fit for ordering and carrying out a debt enforcement procedure in the event that the debtor fails to duly and timely repay the debt specified in the notarial record. In other words, the notarial record with a direct enforceability clause is a contractual execution title, equal in quality to the enforceable court judgment, which makes it possible to order and carry out a debt enforcement procedure.

It is important to realize, however, that there are various types of notarial records with direct enforceability clauses, which differ as to whether or not they also include substantive-law transactions by the participants, and if so, of what type.

The first type is a notarial record which contains the substantive-law arrangement reached between the participants (such as a loan agreement or a settlement agreement), and the said representation whereby the debtor agrees that the notarial record may be directly enforced as an execution title if they were to fail to duly and timely fulfill their obligation under the said substantive-law arrangement.

The second type includes a substantive-law declaration whereby the debtor acknowledges their (already existing) debt and consents to the direct enforceability with respect to the thus acknowledged debt.

The third and last type contains no substantive-law clauses at all, but merely the debtor's consent to direct enforceability with respect to a specific, existing obligation (which must be adequately specified in the notarial record). Each of these various types of notarial record must satisfy specific requirements in terms of content and form for them to be eligible as an execution title.

However, practice has shown that some creditors – and, indeed, some notaries public – make mistakes when drawing up such notarial deeds with direct enforceability clauses. The root cause of these mistakes is a poor differentiation between the specific characters of the above-mentioned various types of notarial record with direct enforceability clause. In the worst case, these mistakes make it impossible for the notarial record to be used as an execution title, rendering them effectively worthless. The creditor then has no choice but to go through a court trial and obtain an enforceable judgment before they may collect the claim. A typical case are notarial records with direct enforceability clause which are drawn up ex post and concern an existing, due but unpaid debt – these always must contain an express acknowledgement of debt by the debtor and the time period for performance (i.e., repayment).

In closing, while the notarial record with direct enforceability clause is a valuable tool that can make creditors' lives easier and help them bring down their recovery costs, one must always pay heightened attention to, and respect all requirements of the law and the case law.

Source:
Case law of the Czech Supreme Court, Act No. 358/1992 Coll., on notaries public and their work (Notarial Code), as amended

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