Last updated: 3 November 2017
In business relationships, partners have every interest to benefit from guarantees, in order to have a good recovery of their debts. The promissory note is widely used in this purpose, but its use imposes some formalities, presented to you below.
The promissory note is a document issued by persons who have a debt towards a beneficiary. By a promissory note, debtors promise to pay a certain amount on a date agreed therein. Compared to other payment commitments, the promissory note is an enforceable title. This means that, in case of refusal to pay (regardless of the reason) by the issuer’s bank, the beneficiary can start the enforcement of the promissory note through a bailiff, without having to bring legal action against the debtor.
Moreover, the promissory note can be transferred by the beneficiary to his creditor as a payment order. In this case, the creditor will collect his debt directly from the issuer.
Even if this payment instrument is widely used in light of its advantages, problems often arise because of the rigidity of the procedures. It is the case if the promissory note is used between business partners from different countries (for example, if the beneficiary is a foreign company who does business with a Romanian entity).
THE PAYMENT OF THE PROMISSORY NOTE THROUGH A FOREIGN BANK
The payment mechanism currently used is the following: at maturity date, the promissory note is sent through the beneficiary’s bank to the issuer’s bank, ordering the latter to pay the amount stated on the document.
If the issuer’s bank refuses to pay (for example: the bank cannot find the amount in the issuer’s account), the beneficiary can start an enforcement procedure against the issuer.
The proceeding used by the banks is a specific one and is in general started by the beneficiary’s bank.
Problems may appear when the beneficiary’s bank is not in Romania, as opposed to the issuer’s bank. The lack of communication or poor communication between banks can lead to a misapplication of the procedures and thus to the non-payment or the refusal to pay written on the promissory note.
As mentioned above, in order to start the enforcement of the promissory note (in case of non-payment), firstly one has to obtain the refusal to pay written on the back of the promissory note (for example: “total refusal to pay on the 1st of January of 2017 due to the lack of available funds in the account”).
Consequently, before accepting a promissory note as a guarantee or as payment and if the beneficiary is not a Romanian company, it would be useful to check with your bank if it can order, when and if the case may be, the payment of the promissory note for the Romanian bank of the issuer.
CURRENCY
A promissory note can also be issued in a foreign currency.
Furthermore the parties can decide the use of a conventional exchange rate when the payment of the promissory note is made (for example, they may provide on the promissory note: “payable in Euros, at the exchange rate of the National Bank of Romania + 1%).
To be efficient, this mention must be written by the issuer.
THE SIGNATURE OF THE ISSUER
According to the legal provisions, the section of the promissory note relating to the issuer’s signature should not include the name of the person authorized by the issuer to sign the aforesaid payment instrument.
However, in practice, there is an opinion stating that, in order to be enforceable against the company, the signature of the company’s authorized representative must also include a clear mention of the said person’s name.
Moreover, even if it may seem redundant, it is useful for the beneficiary to require from the issuer that his authorized representative clearly states his name on the promissory note.