When a promissory note is not executed as a deed, can the claimant bank rely on forbearance as adequate consideration? In a recent judgment in Banque Cantonale de Genève v Sanomi, the High Court answered the question in the affirmative and reiterated the underlying principles of the enforceability of promissory notes.
In this case, after Defendant Mr. Sanomi’s oil and gas trading company, Taleveras, suffered significant business losses, he agreed to sign two promissory notes as a way of personal guarantee for the outstanding loans to the Claimant, Banque Cantonale de Genève. However, when the bank sought to enforce the promissory notes, Mr. Sanomi resisted their application for summary judgment arguing that-
- despite the terminology, the notes were not in fact promissory notes;
- prior to his signing, he was specifically assured that the bank would make no demand under the promissory notes; and
- without any consideration on the part of the bank, the notes were not legally enforceable.
A promise made is a debt unpaid”
Robert W. Service
Pointing out the definition in Section 83 of the Bills of Exchange Act 1882, Mr Justice Blair held that the notes in question were indeed promissory notes and need not be negotiable in order to be legally valid. He further confirmed that under English law, a bill of exchange or promissory note is to be treated as cash and the holder is fully entitled to summary judgment on the instrument. The fact that here the notes were more likely to be cancelled on full payment of the outstanding loans rather than transferred to a third party did not affect their legal status either.
As for Mr. Sanomi’s “no demand” defence, the Court found all evidences pointed towards the contrary and there was nothing on record that suggested that the notes were anything other than security which the bank could rely on if required.
Finally the Court proceeded to explain how, since the notes had not been executed as deeds, they required to be supported by valid consideration for the Claimant to enforce it against the Defendant. So the ultimate question was whether the forbearance was given in exchange for the promissory notes, or whether the bank would have sought to enforce the notes irrespective of any consideration. Following legal precedents starting as early as 1864 (Alliance Bank Ltd v Broom), the Court agreed that forbearance was indeed a valid consideration, and there had been both promised and actual forbearance in the current scenario. The Claimant was thus held to be fully entitled to summary judgment on the promissory notes.
Link: Banque Cantonale de Genève v Sanomi EWHC [2016] 3353
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