Promissory Note and Note Disputes
A promissory note is a negotiable instrument containing the issuer’s promise to pay a certain amount to the payee or to the payee’s order. Not every document referred to in practice as a “note” is a promissory note. The mandatory elements of a promissory note, the issuer’s signature, the maturity and payment entries, the payee, the date and place of issue, and the supplementary provisions of the law must be examined together.
In promissory note disputes, the following are assessed:
- The status of the promissory note as a negotiable instrument and its mandatory elements
- The liability of the issuer and of the person giving the aval
- The capacity of the payee and of the holder who acquired rights by endorsement
- The type of maturity and the payment date
- Protest and the right of recourse
- A security note and the allegation of lack of consideration
- Filling in a blank promissory note contrary to the agreement
- Defenses based on goods or services not having been delivered
- Notes based on loan, sale, work and service relationships
- Forged signature, denial of signature and unauthorized representation
- Special conditions for notes issued in consumer transactions
- Enforcement on negotiable instruments, negative declaratory actions, actions for recovery of payment and cancellation actions
That the debt in the underlying contract has ended or never arisen may not be a defense that can be raised against everyone, to the same extent, against a claim arising from the promissory note. The legal relationship in which, and the conditions under which, the holder acquired the note are also important.
Security Note, Lack of Consideration and Blank Note Disputes
That a check or promissory note was given to secure performance of a particular contract does not in every case automatically remove the negotiable-instrument undertaking on the document. The security purpose must be substantiated with the text of the note, the contract, the delivery record, the payment plan, correspondence and the conditions under which the note was given.
The main disputes:
- A security note tied to a particular contract
- Putting the note into enforcement before a debt has arisen or before performance is complete
- Failure to return the note even though the underlying debt has been paid
- Use of the note even though no goods or services were ever provided
- A dispute over the note amount after partial payment or set-off
- Filling in a blank note contrary to the agreement
- Later addition of the amount, maturity, payee or issue date
- Notes issued as a favor
- Measuring a contractual penalty or the amount of security
- Transfer of the note to a third party and the raising of personal defenses
A defense of “security note” or “note without consideration” must be built not on an abstract statement alone but on documents showing for which legal relationship and under which conditions the note was given.
Notes Issued in Consumer Transactions
There are special provisions protecting the consumer with regard to negotiable securities issued in consumer transactions. Conditions such as that notes issued within an installment transaction be separate for each installment and registered in a name may affect the validity of the note and against whom it can be asserted.
In the review:
- Whether the transaction is really a consumer transaction
- The capacity of the parties as consumer, seller, provider or lender
- Whether the note was issued separately for each installment
- The form of issue, in a name or to order
- Transfer of the note to a third party
- The consumer’s defenses arising from the underlying contract
- The competent consumer court and mediation as a condition of suit
- The relationship between the consumer transaction and enforcement on negotiable instruments
are assessed. That one of the parties is a company or a merchant does not by itself remove the character of the transaction as a consumer transaction.
Saying “I Gave It as Security” May Not Be Enough on Its Own
Which debt the note secures, under what condition it is to be used and the condition for its return must be shown with the contract and the delivery records. It must not be assumed that an abstract statement of security or lack of consideration stops the enforcement. Transfer of the note to a third party may affect the defenses that can be raised.
Link the payment to the specific note
Keep the bank receipt, the payment receipt, the reconciliation and the note return record together. A transfer with a general description may not in every case prove that a specific promissory note was paid. In the case of partial payment, the remaining amount and interest are examined separately.
Special protection for consumer notes
Under Law No. 6502, Art. 4/5, negotiable securities may be issued because of the consumer’s transactions only in a name and separately for each installment; notes contrary to this are invalid with respect to the consumer. The purpose of the transaction, the form of transfer and the correct route of application must also be determined.
Blank notes and later completion
The existence of fields completed later on the document does not in every case by itself lead to a finding of forgery. The authority given, the filling-in agreement, the conditions under which the note was acquired and technical examination are assessed together. Keep the original of the note without altering it.