Case Number:

Taiwan Changhua District Court Civil Ruling No. 34 of 2024

Date of Ruling:

May 31, 2024 (ROC Year 113)

Cause of Case:

Promissory Note Ruling

Taiwan Changhua District Court Civil Ruling

113年度抗字第34號

Appellant: Ming Yueh International Health Technology Co., Ltd.

Legal Representative: Wu Shu-yao

Appellee: Wending International Co., Ltd.

Legal Representative: Wu Lun-yen

Counsel: Attorney Hsu Ying-chieh

Attorney Wang Chi-feng

In the matter of the promissory note ruling between the above-mentioned appellant and appellee, the appellant appealed against this Court’s Summary Division Civil Ruling No. 328 of 2024, dated March 25, 2024. This Court rules as follows:

ORDER

The appeal is dismissed.

The costs of the appeal, in the amount of NT$1,000, shall be borne by the appellant.

REASONS

I. Procedural matters:

　　The appellant in this case appealed against a disposition made by the judicial affairs officer of this Court pursuant to Article 17-2, Paragraph 1, Subparagraph 3 of the Court Organization Act and Articles 50 and 54 of the Non-Contentious Matters Act. Pursuant to Paragraphs 1 and 2 of Article 55 of the Non-Contentious Matters Act and its legislative rationale: “The legislative spirit of Article 485 of the Code of Civil Procedure is hereby referenced in prescribing Paragraph 2. As to whether the district court should at this time act through a panel or a single judge, the district court shall determine this based on the specific circumstances of each case.” Accordingly, this ruling by a single judge of this Court is lawful.

II. The appellee’s claims in the court of first instance and arguments before this Court are summarized as follows:

　㈠The appellee holds a promissory note issued by the appellant that waives the requirement of a protest (the “Promissory Note”). However, when the Promissory Note became due, the appellee presented it to the appellant on March 17, 2024, but payment was not made. The appellee therefore applied for a promissory note ruling based on the Promissory Note. The Summary Division of this Court subsequently issued Civil Ruling No. 328 of 2024, permitting compulsory enforcement of the principal amount and interest stated on the Promissory Note (the “Ruling of the Court of First Instance” and the “Original Ruling,” respectively).

　㈡The Promissory Note expressly states “unconditionally undertake payment.” Although it also states, “This promissory note is provided as security for a loan of NT$300 million,” this additional wording does not make payment presentation conditional upon an uncertain fact, nor does it alter the undertaking to make unconditional payment. Accordingly, that wording has no effect under the Negotiable Instruments Act and does not affect the validity of the Promissory Note. The appellant’s assertion that the Promissory Note is therefore invalid is untenable. Although the appellant also argues that the face amount differs from the amount of the claim, this concerns a dispute over substantive matters and is unrelated to these non-contentious proceedings; it therefore cannot serve as grounds for appeal. The appellee accordingly requested dismissal of the appeal.

III. The appellant’s grounds of appeal are summarized as follows:

　㈠The Promissory Note contains an adverse notation and therefore has no effect as a promissory note and is an invalid negotiable instrument:

　　⒈Although the front of the Promissory Note states, “This promissory note is provided as security for a loan of NT$300 million,” Article 2, Paragraph 1 of the loan agreement signed by the parties (Appellant’s Exhibit 1) provides that, simultaneously with the loan, the parties had already provided substantial security consisting of the land owned by the appellant located at land lots 000, 000, 000, and 000, ○○ Section, ○○ Township, Changhua County, and buildings with building numbers 245-2, 245-3, and 420 in the same section. Paragraph 2 of the same article provides: “Upon receiving the loan, Party A shall issue and deliver to Party B one promissory note with a face amount of exactly NT$300 million.”

　　⒉Accordingly, based on the parties’ true intent, it is apparent that, because the parties already had the real property specified in Article 2, Paragraph 1 of the loan agreement as security, the Promissory Note was provided solely for security purposes. This is why the front of the Promissory Note states, “This promissory note is provided as security for a loan of NT$300 million.” However, this conflicts with the wording shown on the face of the note, “Payable unconditionally on [year] [month] [day] upon presentation,” and does not comply with Article 120, Paragraph 1, Subparagraph 4 of the Negotiable Instruments Act. Thus, the condition stated on the Promissory Note—“This promissory note is provided as security for a loan of NT$300 million”—is inconsistent with the nature of a promissory note and contravenes the law. It constitutes an “adverse notation” and therefore produces no effect as a negotiable instrument.

　㈡The amount of the parties’ claim up to the date on which the security was finalized should be NT$210,000,000, and the appellee’s claim based on the NT$300 million face amount of the Promissory Note is mistaken:

　　The basis for the claim for punitive liquidated damages in this case is Article 9 of the loan agreement: “Unless otherwise provided in this Agreement, if either party to this Agreement breaches any provision hereof and fails to cure the breach within the period specified in the other party’s written notice, the breaching party shall, in addition to being liable to the other party for damages, pay the other party punitive liquidated damages of NT$10 million.” The appellant does not dispute that it failed to comply with Article 1, Paragraph 7 of the loan agreement, which provides: “Party A (i.e., the appellant) shall, upon expiration of the agreed loan period, fully repay the principal, interest, and related expenses in one lump sum, and shall remit the repayment to the account designated by Party B (i.e., the appellee),” and that, after the appellee demanded payment by certified letter, it failed to repay the loan and interest by the due date. Nevertheless, under Article 9 of the loan agreement, the appellee has only the right to claim punitive liquidated damages of NT$10 million from the appellant. The appellee instead directly claims the note amount based on the NT$300 million face amount of the Promissory Note, which is mistaken and clearly inconsistent with the loan agreement.

IV. This Court’s determination:

　㈠A person who signs a negotiable instrument is liable according to the wording stated on the instrument; when two or more persons sign jointly, they are jointly and severally liable. Article 5 of the Negotiable Instruments Act expressly provides so. Furthermore, although a promissory note may contain a waiver of the requirement to make a protest, the holder must still present it for acceptance or payment within the prescribed period; however, the burden of proving non-presentation lies with the person asserting that the holder failed to present it. Article 124 of the Negotiable Instruments Act, applying Article 95 mutatis mutandis, expressly provides so.

　㈡Furthermore, when exercising recourse against the maker of a promissory note, the holder may apply to the court for a ruling and then seek compulsory enforcement; Article 123 of the Negotiable Instruments Act expressly provides so. Under the foregoing provision, an application by the holder of a promissory note for a court ruling permitting compulsory enforcement against the maker is, in nature, a non-contentious matter. The ruling on such application and the ruling of the appellate court merely examine, under non-contentious procedures, whether compulsory enforcement should be permitted; they do not have the effect of conclusively determining whether a substantive legal relationship exists. If the maker disputes the existence of the note debt, the maker should separately bring an action for declaratory judgment to resolve the matter (see the purport of Supreme Court precedent Tai-Kang-Zi No. 76 of 1968).

　㈢The appellee applied under Article 123 of the Negotiable Instruments Act for a ruling permitting compulsory enforcement of the Promissory Note and submitted the Promissory Note, which is consistent with its allegations, as evidence. Since the appellant signed and affixed its seal to the Promissory Note, under the foregoing explanation it must be liable according to the wording stated on the instrument. The Original Ruling, which granted the application following a formal examination, contains no defect.

　㈣The appellant first argues that the Promissory Note contains an adverse notation and is invalid. The wording on the Promissory Note—“This promissory note is provided as security for a loan of NT$300 million”—merely explains the underlying cause relationship of the instrument. It does not specify when, where, or by whom the funds must be collected, nor does it delete the statement on the face of the note that payment is to be made unconditionally. Based on the abstract nature of negotiable instruments, the appellant may not refuse a payment request by another holder of the instrument on the ground that the funds were provided as security for a loan. The wording that payment is to be made unconditionally is therefore unaffected. Accordingly, under Article 12 of the Negotiable Instruments Act, the notation has no effect under negotiable instruments law, but does not affect the validity of the Promissory Note. The appellant’s claim that the Promissory Note is invalid is therefore untenable.

　㈤The appellant next argues that the amount of the parties’ claim up to the date on which the security was finalized should be NT$210,000,000, and that the appellee’s claim based on the NT$300 million Promissory Note is mistaken. However, this concerns a dispute over rights and obligations under substantive law and is not an issue that may be examined in these non-contentious proceedings. The appellant’s argument that the face amount of the Promissory Note exceeds the actual debt and therefore cannot be enforced is likewise untenable. Even if the grounds of appeal were true, the appellant should seek relief through litigation in accordance with law.

　㈥In light of the foregoing, the appellant’s allegation that the Original Ruling was improper and its request that it be vacated are without merit. The appeal should therefore be dismissed.

V. For the foregoing reasons, this appeal is without merit. Pursuant to Article 21, Paragraph 2 and Article 46 of the Non-Contentious Matters Act, and Article 495-1, Paragraph 1, Article 449, Paragraph 1, Article 95, Article 78, and Article 87 of the Code of Civil Procedure, the ruling is rendered as stated in the Order.

Republic of China Year 113, May 31, 2024

Civil Division Four Judge Li Yen-sun

This is a certified true copy of the original.

Except on the ground that the applicable law was manifestly erroneously applied, no further appeal may be filed against this ruling. If a further appeal is filed, an attorney must be appointed as agent and a further appeal petition must be submitted to this Court within 10 days after receipt, together with payment of the NT$1,000 further-appeal court fee.

Republic of China Year 113, May 31, 2024

Clerk Liao Han-hsuan

The appellant’s allegation that the Original Ruling was improper and its request that it be vacated are without merit. The appeal should therefore be dismissed.