“Payable on Demand” Promissory Notes in Foreign Currency: Interest and Applicable Rate

On February 2, 2017, the Argentine Court of Appeals in Commercial Matters dismissed an appeal lodged by the plaintiff in re “Rodríguez, Dino Omar v. Malsenido, Cristian Roberto and another re Executive”, file No. 3,710/2016.

The plaintiff, in his capacity as holder of “payable on demand” promissory notes with a “no protest” clause, initiated judicial proceedings against the debtor, and appealed the decision of the lower court which condemned the respondent. His appeal focused on the date established to compute interest and on the 8% annual rate applied to the foreign currency denominated debt, alleging deviation from what was agreed in the notes.

Even though the Court of Appeals considered that the procedural requirements had not been fulfilled, the Court explained the reasons why the appeal should be  rejected.

The promissory notes were issued to be “payable on demand” with a “no protest” clause, but as they were neither submitted before the direct obligor nor protested for lack of payment, this caused a loss of the regressive actions. That is, the loss of the direct actions against every other obligor, other than the acceptor and their guarantors, such as the endorsers.

In addition, omission to submit the promissory notes before the debtor impacts on the date from which the interest is computed, which is delayed until the time of the summons to pay. This is because the maturity of the promissory notes issued to be “payable on demand” is uncertain and undetermined; therefore, the interest must be payable from the date on which the documents are submitted for their collection, or from the date of the summons to pay.

The position of the direct obligor, issuer of the promissory notes, remains unchanged.

With respect to the computation of interest, the Court of Appeals stressed that the holder intended that this be applied from the date when he personally and “on several occasions” requested payment from the debtor, which is insufficient since he should have indicated the specific date when the notes were submitted for payment.

With respect to the 8% annual interest rate applied by the lower court, the Court of Appeals noted that it is reasonable “especially when this Court has proposed a lower rate for debts in foreign currency” and judged “right to fix it taking into account that the applicable rate must recognize a pure revenue, because the value of the dollar has some stability since it is a 'strong' currency that is not, in principle, in a process of devaluation of importance.”