Important Case Laws in Promissory Note Disputes in Sri Lankan Jurisdiction

I. Introduction to Promissory Notes in Sri Lankan Law

Promissory notes constitute a cornerstone of commercial transactions, serving as a fundamental class of negotiable instruments. In Sri Lanka, the legal framework governing these instruments is primarily enshrined within the Bills of Exchange Ordinance (Cap. 82). This foundational statute, while encompassing various negotiable instruments, extends its core principles to promissory notes through specific application clauses, thereby establishing the legal bedrock for their creation, transfer, and enforcement.¹ A promissory note is fundamentally defined as an unconditional written promise by one party (the maker) to another, obliging the maker to pay a specified sum of money, either on demand or at a predetermined future date, to a designated person or to the bearer.² This definition underscores the instrument's clarity and certainty, which are vital for its commercial utility.

The role of promissory notes in the commercial landscape is significant, as they function as essential credit instruments. They facilitate lending and debt acknowledgment, obviating the need for more intricate contractual arrangements in many instances.² By providing a clear and legally binding written acknowledgment of debt and a commitment to repayment, promissory notes streamline financial interactions. Their capacity to circulate as a "medium of exchange" or a "substitute for government bills or notes" highlights their broader economic function, extending beyond simple debt instruments to act as a form of "paper money" within the financial system.² This historical and functional evolution demonstrates their adaptability and enduring relevance in facilitating trade and credit.

A critical aspect of understanding promissory note law in Sri Lanka is recognizing the interconnectedness of legal principles across different negotiable instruments. The Bills of Exchange Ordinance governs not only promissory notes but also cheques and other bills of exchange.¹ Judicial interpretations and established principles concerning one type of negotiable instrument, such as cheques, often bear direct or analogous implications for others, including promissory notes. This broadens the scope of relevant legal precedent, requiring practitioners to consider cases beyond those explicitly mentioning "promissory notes" when conducting comprehensive research. This comprehensive approach is essential for a complete understanding of the legal landscape.

Furthermore, the historical development of promissory notes reveals their evolving commercial utility. Initially serving as straightforward acknowledgments of debt, these instruments have transformed into sophisticated tools for credit and exchange.² This historical progression suggests that courts, in adjudicating promissory note disputes, may implicitly consider their dynamic commercial function. This perspective can influence judicial approaches to issues such as consideration, transferability, and the enforceability of any conditions attached to these instruments, reflecting the continuous adaptation of commercial law to meet market demands.

II. Foundational Legal Principles in Promissory Note Disputes

The enforceability of promissory notes in Sri Lanka hinges upon adherence to several foundational legal principles, encompassing their essential elements, the concept of consideration, procedural requirements for enforcement, and specific conditions related to presentment and dishonour.

Essential Elements and Validity

For an instrument to qualify as a valid mercantile promissory note, it must embody an "absolute promise to pay" a "definite sum." Crucially, this promise must not be contingent upon a particular fund or condition.⁵ This distinction is vital because documents that are conditional or dependent on future events may not strictly conform to the definition of a promissory note under the law merchant, even if they might be subject to stamp duty as such.⁵ Beyond the explicit wording, the underlying "intention to make a note" is paramount, even in the absence of specific formal language.³ This principle prioritizes the substantive intent of the parties over rigid adherence to form, although clear articulation is always advisable to prevent disputes.

The Concept of Consideration and its Application

A significant area of dispute in promissory note cases revolves around consideration. While general contract law dictates that "past consideration is no consideration," the Bills of Exchange Ordinance carves out a specific exception for negotiable instruments. Section 27(1)(b) of the Ordinance explicitly stipulates that "an antecedent debt or liability" is deemed valuable consideration, irrespective of whether the bill is payable on demand or at a future date.¹ This statutory provision is directly applicable to promissory notes, simplifying the burden of proving consideration in actions for their recovery.

In practice, a legal presumption exists that a promissory note is supported by consideration.⁶ This presumption, often found in common law jurisdictions and reflected in statutes like Section 118 of the Negotiable Instruments Act (a principle generally applicable in Sri Lanka), places the evidentiary burden on the defendant to demonstrate that the note lacks valid consideration.⁶ However, it is important to note that a promissory note, on its own, may not conclusively prove the existence of an underlying loan agreement or the actual transfer of funds, particularly if the note is "irregular" or does not explicitly detail the basis for the amount.⁷ This means that while the note carries a presumption of consideration, a robust defense challenging the actual transfer of funds or the nature of the underlying transaction may necessitate the plaintiff providing additional evidence to substantiate the factual basis of the debt. This highlights the importance of maintaining thorough records of the underlying transaction, rather than relying solely on the promissory note.

Summary Procedure on Liquid Claims (Chapter LIII, Civil Procedure Code)

The Civil Procedure Code, specifically Chapter LIII, provides a summary procedure for the expedited enforcement of "liquid claims," including those arising from promissory notes.¹ This mechanism is designed to accelerate the recovery of fixed sums.

A key procedural aspect under Chapter LIII is the requirement for a defendant to obtain "leave of Court" to appear and defend the action.¹ Such leave may be granted unconditionally if the defendant can establish a

prima facie sustainable defense. However, if the court harbors reasonable doubt regarding the good faith of the defense, it may grant conditional leave, often requiring the defendant to provide security for the claimed amount.¹

The summary procedure demands strict adherence to procedural rules from the plaintiff.⁹ For instance, the summons must conform to Form 19 of the 1st schedule to the Civil Procedure Code.¹⁰ While minor deviations may be overlooked if no substantial prejudice is caused, a complete failure to use the prescribed form can constitute a "fatal irregularity".¹⁰ Additionally, the affidavit supporting the plaint must explicitly state that the sum claimed is "justly due".¹⁰ This dual emphasis on expediency for the plaintiff and procedural safeguards for the defendant reflects a deliberate balance within the judicial system to ensure both efficient resolution and fair process.

Requirements for Presentment and Notice of Dishonour

For actions based on negotiable instruments, including promissory notes, the requirements of presentment for payment and notice of dishonour are considered "imperative".⁴ Sections 45, 46, 48, 49, and 50 of the Bills of Exchange Ordinance outline these conditions.⁴

The plaintiff's plaint must specifically aver that presentment for payment occurred or that notice of dishonour was given. Alternatively, it must state circumstances that legally dispensed with these requirements. Failure to include such averments, or to raise these issues at trial, can lead to the action failing in limine (at the outset).⁴ The burden of proof rests with the plaintiff to demonstrate compliance with these conditions or to establish a valid excuse or waiver.⁴ It is crucial to distinguish between a mere request not to present the instrument (e.g., due to insufficient funds) and a formal waiver of the legal requirement of presentment; the former does not automatically constitute a waiver and must be specifically pleaded and proven.⁴ Furthermore, a general demand for the sum due is insufficient as a notice of dishonour; the notice must specifically state that the instrument was dishonoured and that due notice was provided to the defendant.⁴

The continuous reliance on "Law Merchant" principles, which are rooted in English Common Law, means that Sri Lankan courts frequently refer to historical English jurisprudence when interpreting negotiable instruments.¹ This practice ensures a degree of consistency with international commercial law and underscores the importance for legal professionals in Sri Lanka to be familiar with the historical development and English case law concerning bills of exchange and promissory notes.

III. Analysis of Key Case Laws in Promissory Note Disputes

The following section provides an analysis of significant judicial pronouncements by the Supreme Court and Court of Appeal of Sri Lanka concerning promissory note disputes. These cases illustrate the application and interpretation of the foundational legal principles discussed previously, offering critical guidance for practitioners.

Table 1: Summary of Key Promissory Note Cases in Sri Lanka

Case Name	Citation	Year	Court	Primary Legal Principle/Issue
U. B. Senanayake v. M. Abdul Cader	74 NLR 255	1969	Supreme Court	Imperative requirements of presentment for payment and notice of dishonour for negotiable instruments.
Kistnappa v. Eutnam	17 NLR 230	1914	Supreme Court	Definition of promissory note for stamp duty purposes; conditional promises; admissibility of unstamped instruments.
Velanthan Chetty v. Sathuka Lebbe	18 NLR 252	1915	Supreme Court	Impact of clerical errors on summons in summary procedure; strict adherence to CPC forms.
ANANDA v DISSANAYAKE	2007 1 SLR 43	2007	Court of Appeal	Validity of promissory note with "past consideration"; jurisdiction in summary procedure cases; Section 27 Bills of Exchange Ordinance.
A. M. S. Fernando v. S. A. N. K. Appuhamy	CA/D.C./Negombo/289/2002	2005	Court of Appeal	Summary procedure on cheques/promissory notes; prima facie sustainable defense; blank cheques as security.
CA/DC/Kandy/267/1997/F	CA/DC/Kandy/267/1997/F	2011	Court of Appeal	Burden of proof for fraud; admissibility of undisputed documents; silence as admission in business matters.
Sunpac Engineers (Pvt) Ltd. v. DFCC Bank	SC/Appeal/11/2021	2023	Supreme Court	Broader context of loan recovery and parate execution; definition of "borrower" for security purposes.

A. Cases on Validity and Consideration

1. ANANDA v DISSANAYAKE (2007 1 SLR 43)

This Court of Appeal case involved a plaintiff seeking to recover Rs. 8,000,000/- on a promissory note under Chapter LIII (Summary Procedure on Liquid Claims) of the Civil Procedure Code.¹ The defendant raised objections regarding both the court's jurisdiction and the validity of the promissory note, contending a lack of valuable consideration because the money was allegedly given prior to the note's execution as part of a previous, subsequently destroyed agreement.¹

The Court of Appeal affirmed the District Court's decision, upholding its jurisdiction based on evidence indicating the parties' intention for payment to be made within the Colombo District Court's territorial limits.¹ On the crucial issue of consideration, the court held that since the defendant admitted receiving the money and signing the promissory note, the defense of "past consideration" was untenable. The court explicitly referred to Section 27(1)(b) of the Bills of Exchange Ordinance, which deems an "antecedent debt or liability" as valuable consideration for a bill, a provision applicable to promissory notes.¹ This ruling reinforces the statutory exception to the general contract law rule regarding past consideration, providing a clear precedent for the validity of promissory notes issued for pre-existing debts. The judgment underscores that admitting the receipt of money and signing the note, without strong contradictory evidence, significantly weakens a defense based on lack of consideration.

2. KISTNAPPA v. EUTNAM (17 NLR 230)

Decided by the Supreme Court in 1914, this case addressed whether a document effectively serving as a guarantee for a promissory note should itself be stamped as a promissory note under the Stamp Ordinance.⁵ The document in question promised payment of a sum if the makers of another promissory note failed to pay within a specified period.

The court examined the definition of a promissory note under the Stamp Ordinance, noting that for stamp duty purposes, it could include a "note promising the payment of [money] on a contingency which may or may not happen".⁵ However, for an instrument to be a promissory note in the mercantile sense, it must contain an "absolute promise to pay" a "definite sum" and not be contingent or payable out of a particular fund.⁵ The court concluded that the document, being a guarantee, was conditional and thus not a promissory note in the mercantile sense. Nevertheless, it was liable to stamp duty under the broader definition in the Stamp Ordinance.⁵ This case clarifies the distinction between a true mercantile promissory note and a document that might be treated as such for fiscal purposes, emphasizing the unconditional nature as a core requirement for commercial validity. It also highlights that once an instrument is admitted in evidence, its admission cannot be questioned later on the ground of insufficient stamping.⁵

3. A. M. S. Fernando v. S. A. N. K. Appuhamy (CA/D.C./Negombo/289/2002)

This 2005 Court of Appeal case, though primarily concerning a cheque, offers valuable insights into promissory note disputes, particularly regarding summary procedure and the concept of prima facie sustainable defense.⁸ The plaintiff sought to recover a sum under summary procedure, claiming the defendant borrowed money on a cheque. The defendant argued that no money was paid on the cheque, and it was given as a blank security for a "seettu" transaction, with a property also transferred as security.⁸

The court reiterated that under Section 704(2) of the Civil Procedure Code, a defendant seeking leave to defend must demonstrate a prima facie sustainable defense and good faith.⁸ The court observed that if no money actually passed with the promissory note (or cheque in this case), a claim under summary procedure might not lie solely on the instrument.⁸ The court granted unconditional leave to defend, reasoning that the facts presented by the defendant raised sufficient doubt to require the plaintiff to prove consideration, especially given the claim of a blank cheque as security. This judgment underscores that while summary procedure is expedited, it does not bypass the need for genuine consideration, and a strong defense challenging the

factual basis of the debt can compel a full trial.

B. Cases on Procedural Aspects and Enforcement

1. U. B. SENANAYAKE, Appellant, and M. ABDUL CADER, Respondent (74 NLR 255)

This 1969 Supreme Court judgment, while dealing with a cheque, is a landmark case for all negotiable instruments, including promissory notes, due to its emphatic pronouncements on procedural requirements.⁴ The plaintiff sued for recovery on a cheque, but the plaint failed to aver presentment for payment or notice of dishonour, or any circumstances excusing these requirements.⁴

The Supreme Court held that presentment for payment and notice of dishonour are "imperative requirements" under the Bills of Exchange Ordinance (Sections 45, 46, 48, 49, 50).⁴ The court stressed that the plaint must explicitly contain these averments or state facts demonstrating their dispensation. Failure to do so, or to raise these issues at trial, would cause the action to fail

in limine.⁴ The burden of proving compliance or a valid excuse rests squarely on the plaintiff.⁴ The judgment further clarified that a mere request by the drawer not to present the instrument due to insufficient funds does not constitute a waiver of the legal requirement of presentment.⁴ Moreover, a general demand for payment is insufficient as a notice of dishonour; a specific averment of dishonour and notice thereof is required.⁴ This case serves as a critical reminder of the strict pleading and proof standards necessary for enforcing negotiable instruments.

2. VELANTHAN CHETTY v. SATHUKA LEBBE (18 NLR 252)

In this 1915 Supreme Court case, an action was brought under summary procedure on a promissory note for Rs. 10,000.⁹ However, a clerical error in the summons resulted in the amount being incorrectly stated as Rs. 1,000.⁹ The question before the court was whether this irregularity was fatal to the plaintiff's right to proceed by way of summary procedure.

The court held that such a mistake, while an irregularity, was not "fatal" to the plaintiff's right to proceed under summary procedure.⁹ This decision suggests that while summary procedure demands strict adherence to forms, minor clerical errors that do not cause substantial prejudice to the defendant may not invalidate the entire proceeding. The ruling differentiates between fundamental non-compliance and less significant procedural missteps, emphasizing that the court will assess whether the irregularity genuinely undermines the purpose of the procedure.

3. CA/DC/Kandy/267/1997/F

This 2011 Court of Appeal case involved a suit on three promissory notes under summary procedure, where the defendant alleged fraud in the execution of two notes.³ The defendant, however, failed to lead expert evidence (e.g., from an Examiner of Questioned Documents) to prove the alleged forgery or fraudulent execution.³

The court underscored the principle that a party alleging fraud bears the burden of proving it.³ The absence of expert evidence to substantiate the claim of fraudulent execution was deemed a significant lapse on the defendant's part. Furthermore, the court reiterated that documents marked in evidence without objection become evidence for all purposes.³ A particularly noteworthy principle highlighted was that in business matters, the failure to respond to a letter containing allegations or statements of fact can be construed as an admission of their truth.³ This principle reinforces the importance of timely communication and dispute of claims in commercial dealings. The judgment also affirmed that no particular form of words is essential for a promissory note's validity, provided the intention to create a note is clear.³ This case reinforces the evidentiary burdens on parties and the implications of silence in commercial correspondence.

C. Broader Enforcement Context

While not directly a promissory note dispute, the Supreme Court's landmark judgment in Sunpac Engineers (Private) Limited & another vs. DFCC Bank & 11 others (SC/Appeal/11/2021), delivered on November 13, 2023, has significant implications for the broader context of loan recovery and security enforcement in Sri Lanka.¹⁶ This case concerned the exercise of statutory rights by banks under the Recovery of Loans by Banks (Special Provisions) Act No. 4 of 1990, as amended, specifically regarding "parate execution" (sale by public auction without recourse to court).¹⁶

The Supreme Court unanimously held that a bank could sell mortgaged property by public auction for loan default, irrespective of whether the mortgagor was the borrower or a third party.¹⁶ This decision overruled a previous ruling that had limited parate execution to cases where the mortgagor was also the borrower.¹⁶ The court emphasized Parliament's intent to facilitate speedy loan recovery in the banking sector. This judgment, by broadening the scope of parate execution, enhances banks' confidence in lending against third-party collateral, thereby facilitating credit growth.¹⁶ Although promissory notes are typically unsecured, this case is relevant as it illustrates the judiciary's approach to strengthening debt recovery mechanisms for financial institutions, which can indirectly influence the overall credit environment where promissory notes are often used.

Furthermore, the Money Lending Ordinance also plays a role in the enforcement of promissory notes, particularly in cases involving money lending businesses. This Ordinance provides mechanisms for courts to re-open money-lending transactions if there is evidence that the return to the creditor is excessive, or the transaction was harsh, unconscionable, or induced by undue influence.¹⁸ Critically, the Ordinance allows for relief if the lender took a promissory note where the amount stated was fictitious or left blank.¹⁸ These provisions offer a layer of consumer protection against predatory lending practices, directly impacting the enforceability of certain promissory notes.

IV. Common Defenses and Challenges in Promissory Note Litigation

Litigation involving promissory notes in Sri Lanka frequently encounters a range of common defenses and procedural challenges. Understanding these is crucial for both plaintiffs seeking to enforce notes and defendants seeking to resist claims.

One of the most frequent defenses raised is the lack of consideration.¹ While the Bills of Exchange Ordinance provides that an "antecedent debt or liability" constitutes valid consideration, defendants often argue that no money or value actually passed at the time the note was executed, or that the note was given for a different purpose (e.g., as security for a

seettu transaction or a blank cheque).¹ The burden of proof to rebut the statutory presumption of consideration then shifts to the defendant.⁶ However, if the defendant presents a plausible narrative, such as a blank note given as security, the plaintiff may be compelled to provide further evidence of the actual passing of funds or the underlying transaction.⁸

Another significant challenge relates to the conditional nature of the promise. A true mercantile promissory note must contain an "absolute promise to pay" a "definite sum" and not be contingent upon an event or payable from a specific fund.⁵ Defendants may argue that the instrument, despite its appearance, was subject to unfulfilled conditions or was intended as a guarantee rather than an unconditional promise to pay.⁵ Such arguments can challenge the very characterization of the instrument as a promissory note for enforcement purposes.

Procedural irregularities are a common ground for defense, particularly in actions initiated under summary procedure (Chapter LIII of the Civil Procedure Code). These include:

• Failure to aver presentment for payment or notice of dishonour: As highlighted in U. B. Senanayake v. M. Abdul Cader, these are imperative requirements, and their omission in the plaint can be fatal to the action in limine.⁴

• Non-compliance with prescribed forms: The use of incorrect summons forms (e.g., not Form 19) in summary procedure, while sometimes treated as a mere irregularity if no prejudice is shown, can be a "fatal irregularity" if it undermines the procedural integrity.⁹

• Defective affidavits: The affidavit supporting the plaint must state that the sum claimed is "justly due".¹⁰ A failure to include this specific averment can render the affidavit defective.

Allegations of fraud or forgery are also common, as seen in CA/DC/Kandy/267/1997/F.³ While serious, these defenses place a heavy burden of proof on the defendant, often requiring expert evidence to substantiate claims of fraudulent execution or material alteration.³ The court's stance on "silence as admission" in business matters also means that a failure to promptly dispute claims or allegations can weaken a subsequent defense.³

Finally, the Money Lending Ordinance provides specific avenues for challenging promissory notes in the context of money lending transactions. This includes situations where the interest charged is deemed excessive or the transaction is "harsh and unconscionable" or induced by "undue influence".¹⁸ Crucially, if a lender takes a promissory note as security where the amount stated is fictitious or left blank, the court may re-open the transaction and grant relief to the debtor.¹⁸ These provisions offer significant protection against exploitative lending practices and can fundamentally impact the enforceability of promissory notes in such contexts.

V. Conclusion and Practical Implications

The landscape of promissory note disputes in Sri Lanka is shaped by a blend of statutory provisions, particularly the Bills of Exchange Ordinance and the Civil Procedure Code, and a rich body of judicial precedent. The analysis of key case laws reveals several critical considerations for parties involved in such disputes.

For plaintiffs seeking to enforce promissory notes, meticulous attention to detail and strict adherence to procedural requirements are paramount. This includes ensuring that the promissory note itself meets the essential elements of an unconditional promise for a definite sum. Furthermore, when initiating actions, especially under summary procedure, the plaint must contain all necessary averments, such as presentment for payment and notice of dishonour, or a clear explanation for their dispensation. The affidavit supporting the claim must explicitly state that the sum is "justly due," and the correct procedural forms must be utilized. Maintaining comprehensive records of the underlying transaction, beyond just the promissory note, is also advisable, as courts may require proof of the actual passing of consideration if the note's validity is challenged.

For defendants, the ability to successfully challenge a promissory note hinges on identifying and substantiating a prima facie sustainable defense. Common avenues include demonstrating a genuine lack of consideration (despite the statutory presumption), proving that the instrument was conditional or given for a different purpose, or highlighting significant procedural irregularities in the plaintiff's action. Allegations of fraud or unconscionable transactions, particularly under the Money Lending Ordinance, can also provide strong grounds for defense, though these often require substantial evidence, including expert testimony where forgery is alleged. Timely objection to jurisdiction and prompt response to demands are also crucial to preserve legal positions.

The judiciary's consistent application of "Law Merchant" principles, often drawing from English common law, highlights the enduring influence of these historical legal traditions in Sri Lankan commercial law. This ensures a degree of predictability and alignment with international commercial norms. The courts strive to balance the efficiency of debt recovery mechanisms, such as summary procedure and parate execution for banks, with the fundamental principles of due process and fairness for debtors. This dynamic equilibrium necessitates that legal professionals possess a deep understanding of both the substantive law and the intricate procedural requirements to navigate promissory note disputes effectively in Sri Lankan jurisdiction.