Suspension of execution of a bill of exchange

First Hall, Civil Court Mr Justice Lawrence Mintoff 21 October, 2016

This was a case that ensued following a judicial letter filed in the First Hall Civil Court on 10 April 2014 by X against Y calling upon him to pay within three days the sum of €6,506, the balance of a larger sum of €38,803 in a bill of exchange signed on 15 June 2012, together with interest until effective date of repayment, and this so as to render the bill of exchange an executive title.

X had lent Y the sum of €37,029 to pay for merchandise he had imported for sale. By virtue of a private writing, it was agreed that this amount would be paid within a year with interest accruing at 8%. The parties added on the interest of a year to the sum lent by X to Y and had drawn up a bill of exchange for €38,803. X had purchased items amounting to €18,040 from Y. Y was, in the meantime, paying X from proceeds earned in sales. Eventually the parties started disagreeing on the amounts paid and the calculation of interest. X claimed that he was still due €6,506 by Y, while Y held that he had a balance in his favour of €2,090, as confirmed by his accountant.

denied X’s claims for the execution of the sum of €6,506 claiming (i) the judicial letter was null as it was not presented before the competent court in terms of the value of the balance of the bill of exchange; (ii) without prejudice to the above, Y was not a debtor of X as he had paid the amount stipulated in the bill of exchange in full, part in endorsed cheques, part in cash and part in the form of merchandise. Therefore, Y opposed to the execution of the bill of exchange for the sum claimed in terms of Article 253 of the Code of Organisation and Civil Procedure (Chapter 12 – Laws of Malta).

claimed that the judicial letter was presented before the right Court. It is the entire value of the bill of exchange that determines the competence of the Court and not the balance pending payment since it is the entire bill of exchange that is being rendered an executive title and not only the balance. If anything, the Court could then limit the enforceability of the bill of exchange to the balance claimed.

Case-law has shown that competence of the Court is determined by the original sum due as the Court would have to consider the whole amount to conclude whether the balance claimed is actually due. Regarding the claim that Y had paid in full, X contended that if this were so, Y would have requested to be given the bill of exchange. In any case, Y had to prove that payment was effected. Y eventually withdrew his claim of incompetence of the Court.

referred to Article 253(e) of the COCP which states that “…the court which is competent according to the value of the bill of exchange … may, by decree which shall not be subject to appeal, suspend the execution of such a bill of exchange …in whole or in part and with or without security, upon an application of the person opposing the execution of such bill of exchange … to be filed within twenty days from the service of the judicial letter sent for the purpose of rendering the same bill of exchange … executable, on the grounds that the signature on the said bill of exchange…is not that of the said person or of his mandatory or where such person brings forward grave and valid reasons to oppose the said execution and in such case any person demanding the payment of the bill of exchange… shall file an action according to the provisions of the Commercial Code”. The Court noted that the Court does not specify what are ‘grave and valid reasons’. The legislator left it up to the Courts to determine this. Certainly, the reasons cannot be frivolous nor capricious. Furthermore, the Court noted that the grave and valid reasons could not be wider than those contemplated by the Commercial Code in considering the non-payment of a bill of exchange.

The Court referred to a number of cases on the issue and made a number of observations. Amongst other things, the Court noted how a suspension due to uncertainty as to the amount due is not a valid nor grave reason in terms of law and is simply a means to prolong payment. It noted how the bill of exchange is an ad hoc obligation, autonomous and independent from any other debt or commercial transaction that may have preceded it.

The Court highlighted the fact that the procedure contemplated by Article 253(e) is intended to cover cases of requests for suspension of execution of the bill of exchange and not claims of the invalidity or revocation of such bill of exchange that would require the institution of a Court case.

The Court referred to a number of court cases which delved into the meaning of ‘grave and valid reasons’. Amongst others, the Court noted the following reasons (a) prima facie, it appears that the bill of exchange was extorted by violence or was issued for illegal purposes; (b) when it results that many of the bills of exchange regarding which the suspension is requested have been paid; (c) when the Court has serious doubts whether there is an element of usury.

The Court held that it need not go into all the merits, but must see whether prima facie there exist reasons in terms of Article 253(e) of the COCP to allow for the debtor to contest the case. There is no doubt that the amendments to the law rendering a bill of exchange an executive title were introduced to avoid unnecessary court procedures with very limited claims being available to the defendant. Therefore, the Court has to examine whether there are indeed reasons grave and valid which could successfully be raised as pleas by the Defendant.

In these proceedings, the bill of exchange was not endorsed in favour of third parties and therefore, Y could proceed with his claim that the amount was settled. The Court had to determine whether his allegation was prima facie justified.

In the Court’s opinion, there were serious doubts whether the amount mentioned in the bill of exchange was still due or not. This amounted to a grave reason why the execution of the bill of exchange should be suspended in terms of Article 253(e) above.

The Court therefore upheld Y’s request and ordered the suspension of the execution of the disputed bill of exchange.

A suspension due to uncertainty as to the amount due is not a valid nor grave reason in terms of law