People sign bills of exchange (kambjali) without much thought, often when purchasing a second-hand car under an instalment plan (known as ‘hire purchase’). In practice, usually, bills of exchange accompany a contract; the contract details the rights and obligations of both parties and the bills of exchange serve as guarantee for the payments agreed to. This instrument is simple to use, practical and valuable in many instances, only if the parties are well aware of the legal consequences of such a document.
A bill of exchange is similar to a cheque or a promissory note – it is a written order for payment, that binds one party to pay a fixed sum of money to another, on mere demand or at a predetermined date. The wording is usually something like this: “Pay in Malta, on [day-month-year] this bill of exchange to the order of [creditor’s name and surname and identity card number], the sum of [amount], signed [creditor’s name and surname and identity card].”
This is a useful tool, for it gives access to credit and goods to those who do not possess the capital to make certain purchases. On the other hand, it reduces the risks undertaken by the creditor, and makes it easier for him to enforce that due to him, without the need of lengthy lawsuits. It facilitates trades and offers sufficient clarity and guarantees.
But as with all things law, one needs to proceed with caution.
Bills of exchange are given the stature of an executive title, meaning that they are almost at the same level as final judgments. Simply put, having a signed bill of exchange gives the payee immense legal strength. All one needs to do is to file a judicial letter to render that bill of exchange executable. After that, one can file the necessary warrants, including, for instance, an executable garnishee order.
The debtor does have somewhat of a solution; he can try file an application asking for the suspension of the execution of the bill of exchange if he manages to demonstrate that the signature on the document is not his or if he brings forward grave and valid reasons to oppose the said execution.
Having a signed bill of exchange gives the payee immense legal strength
This has to be done within 20 days from when debtor is served with the judicial letter. This remedy is found in Article 253 (e) of the Code of Organisation and Civil Procedure, Chapter 12 of the Laws of Malta. If he is a successful, the creditor would have to file a lawsuit to enforce the bills of exchange, known in the legal world as ‘actio cambiaria’.
In ‘Western Company Ltd v Spiridione Muscat’ (for procedural purposes, the name of the case in this kind of proceedings are inverted, thus Muscat was the plaintiff, although he appears second in the title), decided by the Civil Court, First Hall, on September 1 (584/2020RGM), the plaintiff was seeking the suspension of the execution against him of a number of bills of exchange. He stated that bills of exchange number 1 to 59 were time-barred and that, in any case, in another lawsuit, he was attacking the contract to which the bills of exchange were attached.
The court went into great detail in describing the legal effects of bills of exchange.
It stated that the bill of exchange cannot be separated from the principal obligation for which they were drawn; it is endorsed (ġirati) onto a third party. Only then (that is, when a third party gets involved), does the bill of exchange acquire absolute autonomy separate from the contract for which it was drafted.
Referring to the element of ‘grave and valid reasons’ for the opposition of a bill of exchange, the court stated that the reasons must be serious and not so wide as to render futile the executive strength that the law wanted bills of exchange to contain.
Furthermore, this procedure is not intended to rescind the bill of exchange but merely to suspend its execution. For the former, there is a separate procedure found in the Commercial Code, and the two must not be confused.
So, for instance, if someone is violently constrained to sign a bill of exchange, he may request the suspension of its execution (our courts have deemed this reason to be sufficiently grave), and then separately, by means of a proper lawsuit, demand the rescission of the said bill of exchange. In considering whether or not there is a valid reason, the court must examine the merits at face value, so that the plaintiff is given time to then challenge the bill of exchange properly.
In this case, the court noted that since it prima facie appeared that more than five years had passed since bills of exchange 1 to 59 could have been executed, the plaintiff could have a valid plea of prescription. As a result, there was sufficient cause for the court to suspend the execution of the bills of exchange, until the plea of prescription could be formally raised in any actio cambiaria filed by the respondent.
However, the rest of the bills of exchange could not be halted. The fact that a separate court case had been instituted in order to attack the contract connected to the bills of exchange meant that the issue was not one that could be easily decided. Therefore, such a complaint fell outside of the court’s remit under Article 253 (e) COCP.
A pending lawsuit was not a grave and valid reason as understood in the law and, therefore, the court could not disregard the scope of the law (that bills of exchange constitute an executive title) and accede to the plaintiff’s request.
In conclusion, the court suspended the execution of bills of exchange numbered 1 to 59 and rejected the request in connection with the rest of the bills of exchange.
The plaintiff was ordered to pay one-fifth of the costs, while the rest were to be paid by the respondent.
Carlos Bugeja is a partner at Azzopardi, Borg & Abela Advocates.