Banque Cantonale De Genève v Sanomi

A promissory note remains legally valid even if the parties agree that it will be cancelled when secured liabilities are repaid. An agreement to retain the note does not prevent negotiability or affect the rights of a holder in due course. Between immediate parties, an oral agreement that the note will never be enforced may be inadmissible where it contradicts the written instrument. Consideration may consist of promised or actual forbearance from enforcing a third party’s debt. Where notes are taken as security, recovery is limited to the outstanding secured indebtedness.

The claimant bank sought summary judgment on two promissory notes signed by the defendant for US$18 million and US$4 million. The notes were given in connection with outstanding trade finance owed by Taleveras, a company founded by the defendant.

The defendant argued that the documents were not promissory notes, that the bank had orally promised not to demand payment, that there was no consideration, and that liability was limited to the actual indebtedness arising from two identified transactions. The central issues were whether the documents were valid promissory notes, whether the proposed defences had a real prospect of success, and the extent of any recoverable amount.

1. The claimant was entitled to summary judgment on the promissory notes. The defendant’s proposed defences had no real prospect of success.

2. The documents satisfied the definition of a promissory note in the Bills of Exchange Act 1882. A note which is not negotiable may nevertheless be valid between the parties. These notes were negotiable because they contained no words prohibiting transfer or indicating that they were not transferable. An agreement that the bank would return the notes upon repayment was a factual arrangement which did not alter their legal status or prejudice a holder in due course.

3. The alleged agreement that the bank would never demand payment contradicted the notes’ express terms and would reduce them to worthless paper. The reasoning in Kazeminy v Siddiqi [2009] EWHC 3207 (Comm) did not assist because the defence here was materially different. Following New London Credit Syndicate Limited v Neale [1898] 2 QB 487, the contemporaneous oral agreement was inadmissible. In any event, the contemporary evidence disproved the alleged assurance.

4. The notes required consideration because they had not been validly executed as deeds. Consideration was supplied by the bank’s promised and actual forbearance. Applying Fullerton v Provincial Bank of Ireland [1903] AC 309, forbearance for a reasonable time may be inferred from the circumstances. The bank had pressed for a personal guarantee and extended time for repayment in reliance on the notes.

5. The notes were security rather than payment. The bank could therefore recover only the outstanding indebtedness of Taleveras relating to the secured transactions, rather than automatically the full face value of US$22 million.