The value of a bond in customary form

Increased evidential proof is needed and only certain defences allowed

A bond in customary form legally secures a creditor and places them in an advantageous position over a debtor, preventing them from raising defences that would allow them to delay the legal process or avoid paying their debt.

The only defences a debtor can raise are that the signature on the bond is not their own, that it was issued by fraud or duress, and the defence added by caselaw of payment of the debt. General denial is not sufficient, documentation is required, such as the existence of a receipt for a payment made, report of the matter to the police to investigate whether forgery was committed or a statement of circumstances that demonstrate fraud or duress.

When the debtor does not keep their promise to pay and proceeds legally, the creditor files an application for summary judgement in case the debtor appears. Through this procedure the creditor can easily and quickly obtain a judgment of the court, thus preventing the debtor from filling a defence.

The bond as a document is of strict nature, given the provisions of the law which recognises that its contents constitute irrebuttable proof of the facts set forth therein. The bond is a written promise by the debtor to pay the amount stated in it, on first demand or at a certain or determinable future time, plus interest and, in the event of legal action, the related costs, and the consideration for which the bond is provided.

According to article 78 of the Law of Contract, Cap.149, the debtor signs in the presence of two witnesses capable of contracting and its validity is not affected by the fact that it is secured by a guarantee, pledge or mortgage on an immovable property. As long as the conditions for its issuance are met, its content becomes irrebuttable and only the above defences can be, as also specified in article 80 of the law.

In the decision issued by the Court of Appeal in C.A.154/18, dated March 20, examining a debtor’s complaint against the judgement of the court of first instance for a decision issued against him on the basis of a bond, it referred to the law and the caselaw and emphasised that the bond in customary form as an independent cause of action, is a peculiar legal arrangement since it gives significant advantages to the plaintiff. According to article 80, in any legal proceeding the facts recorded in the bond constitute irrebuttable evidence and the defences that may be raised are specific.

The purpose of the legislature, as stated, is to create a special contractual institution with increased evidential potential, thereby precluding the raising of the broader defences available in ordinary contractual relationship.

However, in view of the above advantages provided to the creditor of a bond in customary form, the strict observance of the formal requirements provided for in article 80 is imperative, for a ‘bond in customary form’ and thus to be able to establish an independent cause of action.

The court of appeal recalled the findings of the court of first instance on the admissibility of the unconditional signature of the bond which was not contested. It disagreed with the debtor’s claim that the bond lost its legal characteristics and independence, based on his claim that it was signed under a special give-and-take professional cooperation agreement that existed, due to the nature of his cooperation with the creditor. However, this position does not constitute a defence under article 80 of the law and partial or full payment could be invoked as a defence, in the context of the cooperation of the parties.

The court of appeal concluded that the claims of the debtor regarding the payment of the bond that he invoked, were rejected by the court of first instance, which at the stage of the evaluation of the testimony decided that the debtor left a bad impression. It was characterised as an anxious and deliberate attempt to avoid any responsibility or obligation of the creditor.

There was therefore a finding by the trial court that not only was the bond in question not signed under circumstances of fraud or duress by the creditor, but also that the debtor still owed the full amount of the bond. Therefore, the court of appeal decided that there is nothing to justify its intervention in the findings of the court of first instance related to the credibility of the testimony and dismissed the appeal.

George Coucounis is a lawyer specialising in Immovable Property Law, based in Larnaca. E-mail: [email protected], tel: 24818288