Endorsement of Promissory Note: Can the Bank Be Held Liable?

Imagine a trader in Sedan who accepts a promissory note (a written promise to pay a sum on a given date) as payment. He gives it to his bank for collection, but the bank makes an error in the endorsement (transfer of the instrument on the back of the document). The debtor does not pay, and the trader ends up without money. Who is liable? The bank? The debtor?

This question is asked by hundreds of owners and professionals every year. The answer is rarely simple, and an old decision of the Court of Cassation, delivered on 21 January 1980 (No. 78-11.668), provides essential clarification. It addresses the issue of the causal link between a bank's fault and the creditor's loss.

In this article, we will break down this decision for you, whether you are a landlord, tenant or property professional, so that you understand your rights and possible remedies.

The facts: a story that happens every day

We are in the 1970s. A bank, Crédit du Nord, receives from another bank, Banque Ottomane, promissory notes created by a customer of the latter. These notes are endorsed (transferred) to Crédit du Nord, which takes them "for collection" – that is, it undertakes to present them to the debtor to obtain payment.

But Crédit du Nord makes errors: it creates notes to its own order and endorses them in a non-compliant manner. Despite these errors, the main problem lies elsewhere: the signatory of the notes (the one who was supposed to pay) is placed into liquidation of assets (the old equivalent of judicial liquidation). He can no longer pay.

The creditor (the initial beneficiary of the note) then turns against the bank, claiming that its errors caused his loss: if the bank had correctly endorsed the notes, he might have been able to recover them more quickly or exercise recourse. The bank, for its part, argues that the cause of non-payment is solely the debtor's insolvency, not its own errors.

The case comes before the Douai Court of Appeal, which rules in favour of the bank. The creditor appeals to the Court of Cassation, arguing a contradiction in the Court of Appeal's reasoning. The Court of Cassation must decide: is there a causal link between the bank's fault and the loss?

The reasoning of the court — analysed

The Court of Cassation dismisses the appeal. It considers that the Court of Appeal's judgment is not contradictory. In essence, the Court of Appeal first noted the bank's errors (a fault), but then found that these errors were not the cause of the non-payment. The sole cause was the signatory's liquidation of assets. In other words, even if the bank had perfectly endorsed the notes, the debtor would not have paid because he was insolvent.

The legal basis here is Article 1240 of the Civil Code (formerly Article 1382), which sets out the principle of civil liability: "Any act of man which causes damage to another obliges the person by whose fault it occurred to make reparation." To hold a bank liable, it is therefore necessary to prove: a fault, a loss, and a direct causal link between the two. In this case, the causal link was lacking.

Note, however: this decision does not mean that banks are always exonerated. It simply reminds us that the fault must be the direct and certain cause of the damage. What few people know is that the Court of Cassation here applies a strict conception of causation. If the loss would have occurred anyway, regardless of the fault, there is no right to compensation.

In my practice, I have come across cases where landlords in Charleville-Mézières had endorsed promissory notes for a defaulting tenant. The bank made a transmission error, but the tenant was already insolvent. Result: the bank was not ordered to pay, for lack of a causal link. This type of situation is common: one looks for a responsible party, but the real wrongdoer is the debtor who cannot pay.

In short, the decision confirms a consistent line of case law: a professional's liability can only be engaged if his fault is the direct cause of the damage. This is not a reversal, but a classic application of liability law.

What this changes for you — concretely

For the landlord: If you accept promissory notes from a tenant, and your bank makes an error in collecting them, you can only turn against the bank if you prove that, without this error, you would have been paid. For example, if the tenant had funds but the bank wrongly endorsed the note, preventing the deduction, then there is a causal link. Conversely, if the tenant is insolvent, the bank's error changes nothing.

For the tenant: This decision does not directly concern you, but it illustrates an important principle: in case of a dispute, look for the true liable party. If you owe money to a landlord, it is for him to turn against you, not against the bank for minor errors.

For the purchaser or co-owner: In the context of a property sale, if payment is made via a promissory note (rare, but possible), be vigilant about the debtor's solvency. The bank is not an insurer. Concrete example: in Charleville-Mézières, a landlord sells a property for €150,000. The buyer issues a promissory note, but the bank makes an error in the endorsement. If the buyer becomes insolvent, the seller cannot turn against the bank to recover the €150,000.

If you are in this situation, you must: Keep all evidence of the bank's error (letters, statements) and demonstrate that the debtor was solvent at the time of the error. The limitation period is 5 years from knowledge of the loss (Article 2224 of the Civil Code).

Four tips to avoid this type of dispute

• Check the debtor's solvency before accepting a promissory note: Ask for a statement of affairs or a bank guarantee. In Sedan, a landlord accepted a note from a tenant without checking his accounts: the tenant was liquidated, and the landlord lost 3 years' rent.
• Require written confirmation of the endorsement from your bank: Ask for an acknowledgement of receipt or a detailed statement. In case of error, you will have written proof.
• Do not wait to act: As soon as the first payment incident occurs, contact your bank and the debtor. If the bank has made an error, put it on formal notice by registered letter with acknowledgement of receipt.
• Consult a lawyer before starting proceedings: A professional will assess whether the causal link exists. In Charleville-Mézières, a firm saved a client from incurring unnecessary costs by demonstrating the absence of a causal link.

Further reading: related case law and developments

This 1980 decision is part of a line of rulings on causation in banking liability. For example, a Court of Cassation decision of 14 January 1992 (No. 90-15.295) held that a bank that pays a forged cheque is liable, because the loss is directly caused by its fault. In contrast, in our 1980 decision, the loss existed independently of the fault.

The trend in the courts is increasingly demanding regarding the causal link. Judges check whether the loss would have occurred even in the absence of fault. For creditors, this means that it is not enough to prove a bank error; it must also be shown that this error was decisive.

For the future, this case law remains relevant. With the digitalisation of payments, endorsement errors are rarer, but the principle applies to other failures (delay in transmission, misallocation of funds).

Checklist before acting

• Do I have proof of the bank's error? (letter, email, bank statement)
• Was the debtor solvent at the time of the error? (bank statement, financial accounts)
• Is the loss directly linked to the error? (if the debtor was insolvent, the answer is no)
• Have I put the bank on formal notice by registered letter? (mandatory before any legal action)
• What is the amount of the loss? (if less than €10,000, a conciliation procedure may be more appropriate)

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →