In this story, we will provide an example of how a trivial mistake can lead to the loss of pre-secured funds. The disputed point is the signature of the guarantor on the bill of exchange, which is why the county court annulled the ruling of the municipal court. In the example we have, the director of the company signed as the responsible person that the company would pay the debt with the bill of exchange and also appears as a physical person guarantor (avalist) who will personally guarantee the repayment of the debt to another company. It is he who disputes the signature of the guarantor.
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The names of the companies and their directors are known to the editorial team, but I do not wish to mention them as I am not sure whether debtor A intentionally made the mistake that his signature as a physical person is invalid or if it was entirely accidental, and the Supreme Court has not yet ruled on whether the municipal or county court has jurisdiction.
This concerns a debt of 3.1 million kuna of company A, whose director signed the bill of exchange as the responsible person; the company seal is also in that place. This is not disputed in this story, but company B could not collect (only a smaller amount) because company A went into bankruptcy. However, considering that company B knew that the director signed as a guarantor that the debt would be repaid, they slept more peacefully.
Incorrect Conclusion
An entrepreneur owed money to another entrepreneur. The bill of exchange stated that the company owed that money, and the director of the debtor company, which has since gone into bankruptcy, also signed a personal guarantee (aval) as a physical person, which he later disputed in court due to formalities.
The Law on Bills of Exchange (Article 30, Paragraph 3) states: ‘For giving an aval, a signature on the face of the bill of exchange is sufficient, unless it concerns the signature of the drawee (debtor) or the drawer (issuer of the bill of exchange).’ The municipal court ruled in favor of company B, i.e., that company A must pay 3.1 million kuna of debt and default interest and cover court costs, and if company A cannot do so due to bankruptcy, the debt must be settled by its director as the guarantor. However, court documentation shows that the director of company A initially denied having signed as a guarantor, claiming it was a forgery, but graphological expertise determined that it was indeed his signature. After that, since the court fully accepted the expert’s findings, it ruled in favor of company B, i.e., that they could collect either from company A or from the director as a physical person. An appeal was filed by company A and its director to the county court, which annulled the ruling of the municipal court.
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Namely, it accepted the appellant’s argument that the signature of the guarantor (which he previously claimed was a forgery) is not in accordance with the already cited Article 30 of the Law on Bills of Exchange, which states that a signature on the face of the bill of exchange is sufficient for giving an aval. In this case, the signature of the director as a physical person with his address and OIB was not on the face of the bill of exchange, but on the back, so the county court concluded that the municipal court ‘incorrectly concluded that the defendant personally signed the bill of exchange as a guarantor and that it incorrectly applied Article 30 of the Law on Bills of Exchange.’
Lost War?
Thus, a trivial matter could cost company B dearly if the Supreme Court determines that the signature on the face of the bill of exchange is the only valid one. Although I am on the side of company B, which is seeking its money, based on the court documentation, it seems to me that there will be no recovery of the debt from the director as a physical person, and there is only a slight hope of collecting from company A in the bankruptcy proceedings. I fear that in this case, the county court is right.
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No matter how trivial this may seem to us, the law explicitly states that the signature must be on the face of the bill of exchange. It does not state that it must be on the bill of exchange so that it can be placed either on the face or on the back. For the loss of the claim (if the Supreme Court decides in favor of company A), company B will certainly be largely to blame, as its director did not pay attention to what he was doing. This is a good lesson for many, especially small entrepreneurs who do not have time to worry about such formalities, but which can cost them, as in our example, perhaps three million kuna.
POST SCRIPTUM In this example, it is not entirely clear whether the director of company A intentionally signed the guarantee (aval) on the back of the bill of exchange or accidentally, and therefore, as I mentioned, I do not wish to disclose names, but I write this story because it is a good example of a small mistake with a large consequence. However, I remind you that he initially denied that it was his signature, claiming it was a forgery, and then it was determined by graphological expertise that he indeed signed the aval. So if he persistently lied that it was a forgery, it is not excluded that he intentionally signed the aval on the back of the bill of exchange, contrary to the Law on Bills of Exchange. In fact, I believe he did it intentionally, probably realizing that those in company B do not ‘understand’ anything. This is impossible to prove unless the director himself admits it.
