The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Geoffrey Valenzia and Mr Justice Giannino Caruana Demajo, in the case “Ian Pecorella vs Sovereign Caterers Ltd and Ronald Azzopardi” on February 3, 2012, held, among other things, that a bill of exchange and or promissory note could not be enforced if the cause of the principal debt was unlawful.

This suit was filed on the basis of Article 253 of Chapter 12 to suspend the enforcement of an executive title arising under four promissory notes or bills of exchange.

It was submitted that the validity of the bills were regulated by Commercial Code provisions on bills of exchange and that the lack of the signature of the drawer rendered the bill null and void

On March 5, 2008, Ian Pecorella filed a judicial letter against Sovereign Caterers Ltd and Raymond Azzopardi pursuant to Articles 253(e) and 256(2) of Chapter 12 to render executive and enforceable the promissory notes issued by them. Mr Pecorella requested payment of €18,634, allegedly due under four promissory notes.

Raymond Azzopardi and Sovereign Caterers Ltd, subsequently, filed an application to suspend the enforcement of the promissory notes. They submitted that:

The instruments of debts were not in the form of promissory notes but were more in the nature of bills of exchange, which lacked an essential element – as they were not signed by the drawer.

They were not freely granted and were not valid. It was stated that Mr Azzopardi and Sovereign were constrained to sign them under threats and deceit;

The amounts requested from them were due. Payments were allegedly made on account, which were not taken into consideration.

On March 11, 2009, the First Hall of the Civil Court refused to suspend the enforcement of the bills/promissory notes.

Signature of drawer: In Byles on Bills of Exchange it is stated that:

“In general, where an instrument is made in terms so ambiguous that it is doubtful whether it is a bill of exchange or a promissory note, the holder may treat it as either at his option.’’

The court said what was important was that at the time the instrument of debt was signed, Mr Azzopardi and Sovereign had acknowledged and accepted their debt towards Mr Pecorella.

They could not now deny their debt to Mr Pecorella.

In J. Giordmaina vs J.Pace dated January 16, 2003, the court held that when the case was between the original parties and the bill had not yet been endorsed and negotiated to third parties, the signature of the creditor was not so important on the bill of exchange.

The court, in addition, said that a person could request the court permission to regularise the document by withdrawing it and signing it.

Consent: The insistence by a creditor for payment, did not bring about the nullity of documents, nor could it be assumed that the documents were signed under duress. The court said that Mr Azzopardi was assisted by his lawyer at the time, and he was aware of the consequences of his acts.

Illicit cause: Mr Azzopardi claimed that the cause of the debt was unlawful. However the Court of First Instance felt that the notes were still enforceable.

Amount: Once Mr Azzopardi had admitted not making any part payments since 2006, the court dismissed the plea that the debt was not due.

Aggrieved by the decision of the First Court, Mr Azzopardi and Sovereign entered an appeal, calling for its revocation. It was submitted that the validity of the bills were regulated by Commercial Code provisions on bills of exchange and that the lack of the signature of the drawer rendered the bill null and void.

Though a “defective” bill could be used as proof of a debt, it could not be considered to be a valid bill and nor an executive title for the purposes of Article 253 Chapter 12.

Mr Azzopardi and Sovereign Caterers Ltd maintained that as Mr Pecorella, the creditor in possession of the bills, did not regularise the documents, this court could not intervene.

Mr Azzopardi reiterated the argument, that his consent was vitiated. It was stated further that the cause of the debt was illicit, as it arose in connection with the exchange of foreign currency which according to the Financial Institutions Act, Chapter 376, was a licensable activity that had to be carried out in Malta by licensed financial institution.

An “illicit cause” invalidated the debt instruments, argued Mr Azzopardi.

Mr Pecorella in reply, contested Mr Azzopardi’s appeal. He also raised the preliminary plea that the court decree of March 11, 2009 was not subject to appeal, and this to facilitate enforce a bill of exchange.

On February 3, 2012, the Court of Appeal revoked the court decree of March 11, 2009 and declared that there existed grave reasons to suspend the enforcement of the bills.

The following reasons were given for the court’s decision:

Appeal from court decree not to suspend enforcement while the law expressly stated that there was no appeal from a decree which suspended enforcement of a bill of exchange; a contrario sensu, a decree which refused to suspend the enforcement of a bill, was subject to appeal, maintained the court. If a court decreed “to suspend enforcement”, a creditor had available other remedies. He could request the judicial acknowledgment of his claim.

However, if a court refused to suspend its enforcement, a debtor had no other remedy, even if the court had considered whether there were reasons to oppose an enforcement on a prima facie basis.

The court said that it was appropriate for a debtor to be denied the right to appeal.

Bills of exchange: Mr Azzopardi and Sovereign were both the drawers and the drawers on the bills.

Mr Pecorella was the beneficiary, that is the payee. Both Sovereign and Mr Azzopardi signed as the drawers, noted the court, and it was not correct to say that the bills were not signed by the drawer in the circumstances.

Sovereign and Mr Azzopardi as drawers also signed and accepted the bills. The signature of Mr Pecorella as creditor/beneficiary was not necessary. This would have been required, if the bills had been endorsed in favour of a third party.

The court said that there was nothing lacking on the bills. The form was good, and according to law.

The bills were binding on Sovereign and Mr Azzopardi. The court could not therefore accept that the bills were not in a proper form.

There was no evidence of physical and moral violence noted the court. The fact that a creditor threatened legal proceedings did not vitiate a person’s consent.

Illicit cause: In this case, Mr Pecorella did not deny that Mr Azzopardi exchanged foreign currency, on a regular basis from 2000 to 2004. It appeared therefore that this was done over a period of time in breach of the Financial Institutions Act.

On this basis alone, the court found that there existed serious reasons to suspend the enforcement of the bills of exchange. The “illicit cause” tainted the validity of the bills, concluded the court.

Dr Grech Orr is a partner at Ganado & Associates.