Invalidity of the Cause of a Promissory Note
When discussing the invalidity of the cause of a promissory note, it is necessary to refer first to the definition of commercial papers, since the promissory note is one type of commercial paper. Commercial papers are written instruments prepared in the form required by law, capable of circulation, and containing a right for their holder or beneficiary, consisting of a sum of money payable by the person obligated under the instrument within a short period or upon sight.
The Jordanian Commercial Law defines the promissory note in Article 123(b) as a written instrument made in accordance with the conditions stated in the law, containing an undertaking by its maker to pay a specified sum of money upon sight, on a specified date, or on a determinable date, to the order of another person, namely the beneficiary or the holder of the instrument.
As for the substantive conditions that must be available when issuing a promissory note, they are:
1. Legal capacity.
2. The obligation must be based on consent free from defects of will.
3. The obligation must relate to a possible and lawful subject matter.
4. There must be a lawful cause for the obligation.
The following is an explanation of some of these substantive conditions:
Consent: The negotiable-instrument obligation arising from signing a promissory note requires the same valid consent required for any voluntary obligation. Such consent must be sound and free from defects. If a person signs a promissory note while his or her will is affected by any defect of consent, such as mistake, duress, or fraud, the obligation is voidable in that person’s interest. If the will of any party is entirely absent, the obligation is void. The beneficiary’s consent is also required, because the issuance of the promissory note is usually a settlement of a transaction between the beneficiary and the maker/drawer. Accordingly, if the consent of the debtor under the promissory note, whether the drawer, the accepting drawee, an endorser, or an aval guarantor, is affected by a defect of will, such as mistake, duress, or fraud, that debtor may invoke invalidity against the direct creditor and against the final holder if the latter acted in bad faith; that is, if the holder knew of the defect when the promissory note was transferred to him. This is an application of the rule that a negotiable instrument is purged of defenses.
Subject Matter: The subject matter of the negotiable-instrument obligation must be a sum of money. If the subject matter of the promissory note is the performance of an act, abstention from an act, or delivery of something other than money, then the instrument is an ordinary document governed by the general rules applicable to documents, and it is not considered a commercial paper or a promissory note.
Cause: This is the central point of this discussion. Under the general rules, the cause of the debtor’s obligation under the promissory note and the cause for issuing it must be lawful and existing. If the cause of the obligation does not exist or is unlawful, meaning that it violates public order or morality, the obligation is void. However, this invalidity is limited to the relationship between the maker and the direct beneficiary.
For example, if a person purchases goods from a merchant and issues a promissory note in payment of their price, payable on a specified date, then there is a contractual relationship, and the promissory note has been issued in performance of the obligation arising from that relationship. That relationship must be valid, lawful, and not contrary to public order or morality. Therefore, most laws invalidate commercial papers issued for the payment of a gambling debt or in return for performing an act criminalized by law.
Another example that occurs in practice is the issuance of accommodation promissory notes, meaning notes issued without a real debt relationship. This may occur, for instance, where a husband issues a promissory note for a large amount in favor of his wife to prove to her that he will not marry another woman. In such a case, there is no genuine debt relationship; therefore, the cause of the obligation is unlawful or unreal.
It should be noted here that when the debt relationship is not genuine, meaning that the cause for the creation of the obligation is not real and a promissory note has been issued for that reason, the requirement of cause is invalid. Accordingly, the creditor has no right to demand that the debtor pay the debt for which the promissory note was issued. The invalidity of the cause may be proven by producing the original contract, if any, by the debtor’s acknowledgment, by a decisive oath, by witness testimony, and by all other means of proof, in order to establish the circumstances surrounding the drafting of the promissory note.
It is also worth noting that the law has specified mandatory particulars that must be present in order for the instrument before us to be considered a promissory note, rather than an ordinary document or another type of commercial paper. These mandatory particulars are:
1. The order clause, or the phrase “promissory note” or “bill of exchange,” written in the body of the instrument in the language in which it is drafted.
2. An unconditional undertaking to pay a specified sum of money.
3. The maturity date.
4. The place of payment.
5. The name of the person to whom, or to whose order, payment must be made.
6. The date and place of creation of the instrument.
7. The signature of the person who created the instrument, namely the maker.