Endorsed bills of exchange have to be paid irrespective of underlying obligations

The law makes a difference between endorsed bills of exchange and those which are not endorsed

The law makes a difference between endorsed bills of exchange and those which are not endorsed. This was held in a judgement delivered by Mr Justice Robert Mangion on 1 September 2020 in Western Company Limited -v- Spiridione Muscat.

Muscat had filed an application to reject an application filed by the company to have a number of bills of exchange enforceable.

This action is based on Article 253 of the Code of Organisation and Civil Procedure, which lists bills of exchange as an executive title. In the same article the court may suspend the enforcement of the bill so exchange, after an application is filed within 20 days after receiving a judicial letter rendering the bill of exchange as enforceable. There are two reasons to suspend the enforceability of a bill of exchange, the first is that it is not signed by the person who is to sign it or else for grave and valid reasons.

Muscat explained that he does not owe anything to the company, since there is a pending lawsuit, and in anyway the first 59 bills of exchange are time barred by Article 2156(f) of the Civil Code.

The Court in its judgement made reference to a number of judgements dealing with bills of exchange such as Raymond Scerri v Christopher Caruana decided on 27 January 2020 by the Court of Appeal, which gave an interpretation of Article 253(e) of the Code of Organisation and Civil Procedure (COCP). The Court in that instance held that there is a difference between bills of exchange which are endorsed and those which are not. Those which are endorsed to third parties are independent from the underlying obligation with the third party. In John Giorrdmaina et -v- Joseph Pace, the court held that a bill of exchange held by the creditor of an obligation is not independent from the obligations from which the bill of exchange was issued. It is only when the bill of exchange is endorsed is it not dependent on the agreement between the parties.

Articles 197 and 198 of the Commercial Code lists the pleas of an action based on bills of exchange and they read:

“197. Pleas which are personal to the endorsers may not be set up against the holder of a bill.

198. (1) Pleas which are personal to the holder of a bill cannot delay the payment thereof, unless the pleas are such as can be conveniently and speedily disposed of in the pending action.

(2) Where such pleas require a prolonged enquiry, the examination thereof shall be referred to an independent action and, meanwhile, the judgment ordering the payment of the bill, with or without security, as the court shall deem fit, shall not be delayed.”

In another judgement Charles Gatt noe -v- Joseph Vassallo Gatt noe stated that Article 198 of the Commercial Code wants that these issues be decided with a certain amount of efficiency and allow pleas that can be dealt with easily. Pleas that require a thorough investigation cannot be examined in the same action. The same can be said for the reason why one can ask for a suspension from the enforcement of the bills of exchange. The procedure of suspension outlined in Article 253€ of the COCP is limited in scope to the examination of the signature or for a grave and valid reason.

In Michael Attard Limited -v- Turista Limited held that grave and valid reasons cannot be wider than that provided in the Commercial Code. In Daniel Zerafa -v- 240 Contracting Ltd give violence as an example to what grave and valid refers to or else usury. But in other cases, such as latent defect cases cannot be considered as grave and valid reasons to suspend the execution of a bill of exchange.

In this particular case Muscat is not contesting that the signature is not his and that he was notified with the judicial letter.

Muscat argued that the first 59 bills of exchange are time barred and therefore, qualify to be a grave and valid reasons not to be enforceable. These were dated between 2010 and 2015 and the judicial letters were of July 2020. Therefore, on the fact of it these bills of exchange are time barred, since they exceed 5 years in terms of Article 258(c) of the COCP.  The other bills of exchange are enforceable. There is a separation action instituted in 2018 with regard to the contract between the parties. This should not stop the execution of these bills of exchange.

The Court then moved to uphold Muscat request in part by declaring that the first 59 bills of exchange are not enforceable, but the rest are

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