Commercial Law: Understanding Delays, Bankruptcy, and Bills of Exchange

Posted on Dec 12, 2024 in Law & Jurisprudence

What is a Delay?

A merchant whose assets exceed their liabilities, but who, due to unforeseen events or excusable circumstances, anticipates the need to delay or postpone payments, may be considered in a state of backwardness. They may request authorization from the competent court to proceed with a friendly settlement of their business within a period not exceeding twelve months. During the resolution of their request, they are restricted from engaging in any operations other than simple retail.

Five Differences Between Backwardness and Bankruptcy

  • Delay:
    • Liquidated assets are greater than liabilities.
    • Friendly clearance.
    • Does not go to trial.
    • Occurs when the merchant has acted in good faith.
    • Occurs only in the merchant.
  • Bankruptcy:
    • Liabilities in liquidation are greater than assets.
    • Contentious.
    • Goes to court, potentially leading to a bad reputation.
    • Happens when the dealer is acting in bad faith.
    • Involves both the merchant and the creditor.

The Importance of a Bill of Exchange

  • It is widely used in commerce.
  • It allows legal transactions in any country.
  • Along with checks, it is one of the most significant trade effects today.
  • It facilitates credit between suppliers and customers. Once issued, it can be endorsed and transmitted, transferring the right to credit and becoming a means of payment.
  • It is created jointly by the creditor and requires the reconciliation of debt between two parties in the process of acceptance, making it more advantageous than other business documents.
  • The bill of exchange tends to defer payment, making it a priority and widely used.

Payment: Legal Basis, Concept, Formalities, and Effects

Legal Basis

Commercial Code: 446-450

Concept

Payment is the physical delivery of the amount of money due. It signifies the termination of rights and obligations. Once paid, the bill of exchange becomes a payment instrument.

Formalities

  • The drawee may require that the paid bill of exchange be delivered to them, canceled by the carrier.
  • The carrier is not obligated to receive partial payment.
  • In case of partial payment, the drawee may require that such payment be stated on the bill and that a receipt be issued.
  • The guarantor is liable in the same manner as the guaranteed party and cannot raise personal exemptions if payment is demanded. If the guarantor makes the payment, they acquire the rights derived from the bill against the backed party and those responsible for the latter, allowing them to recover the amount paid.

Effects

  • Effects of Total Payment:
    • Extinguishes the exchange obligation.
    • The drawee may recover the bill.
  • Effects of Non-Payment:
    • Requires the holder to protest the non-payment.
    • Generates responsibility for the drawer.

The Protest: Legal Basis, Concept, Purpose, Formalities, Involved Parties, Effects, and Consequences of Non-Lifting

Legal Basis

Commercial Code: 450-462

Concept

An authentic document that records the lack of acceptance or non-payment of a bill. It is not required to exercise if returning to action.

Purpose

To provide irrefutable and indubitable proof of non-payment or non-acceptance of the bill.

Formalities

  • The protest for non-payment must be made either on the day the bill is due or within two working days.
  • The protest for non-acceptance must be made before the period specified for submission for acceptance.
  • The lack of acceptance waives the requirement to submit the bill for payment and protest for non-payment.
  • The fact of the protest, along with the date of the respective certificate, must be stated on the bill itself or an attached sheet, under the notary’s signature. The official minutes will also contain:
  1. The verbatim reproduction of everything recorded on the bill.
  2. The requirement made to the drawee or acceptor to accept or pay the bill, indicating whether the person was present or not.
  3. The reasons for the refusal of acceptance or payment.
  4. The signature of the person extending the measure, or an indication of their inability or refusal to sign.
  5. The place, date, and time of the protest, and the signature of the authorized official.

Who Makes It?

The beneficiary.

Consequences of Non-Lifting of Protest

The stock exchange rights are lost.

The Stock Exchange: Modalities, Against Whom They Operate, Differences, and the Action for Reimbursement

Definition

The right of the active subject of the obligation contained in a claim (the policyholder, beneficiary, or the last holder) to claim payment in court through an executive process.

Details and Against Whom They Operate

  • Exchange Direct Action: This action is brought against the principal debtor. The principal debtor varies depending on the instrument:
    • Bill of exchange: the accepting party.
    • Invoice: the buyer of the goods.
    • Promissory note: the party promising to pay.
    • Certificate of deposit: the depositary of the assets.
    Direct action can also be taken against the guarantors of the principal debtor, as their obligation, although autonomous, is to replace the principal debtor.
  • Exchange Action in the Way Back (Return Action): This action is taken against the drawer, the endorser, or a guarantor who is not the principal debtor.

The Action for Reimbursement

This is a personal action arising from the Contract Deposit. If the debtor pays without notifying the surety, and the surety, unaware of the payment, pays again, the debtor has the right to a reimbursement action against the creditor. The guarantor can seek repayment of the principal, interest (at the current rate from the payment), expenses, and potential damages incurred due to the contract, provided the surety was unaware of the debtor’s payment.

The basis for this action originates in Roman law, specifically within the mandate when bail was established with the debtor’s consent, and informally when the guarantor acted without the debtor’s knowledge.

A guarantor who pays part of the debt can only seek recourse against the debtor for the amount paid, even if the payment resulted from a transaction or partial remission agreed upon with the creditor.

“Therefore, the refund action is an action for damages and can never be for profit.”

If the guarantor pays more than they should, they can only seek recourse against the debtor for the actual debt amount, as the debtor is not responsible for the excess. This is without prejudice to the guarantor’s potential in rem action against the line of credit.

The Endorsement: Legal Basis, Concept, Involved Parties, Formalities, Modalities, and Effects

Legal Basis

Commercial Code: 419-428

Concept

A collateral agreement inseparable from the debt, whereby the creditor substitutes another party in their place, transferring the title effects. It transfers the right contained in the bill of exchange.

Subjects Involved

The two parties involved are the one transmitting the title (endorser) and the one acquiring it (endorsee).

Formalities

  • The endorsement must be written on the bill of exchange or an additional sheet.
  • It must be signed by the endorser.
  • The endorsement is valid even if the beneficiary is not designated or if the endorser only signs the back of the bill or an additional sheet (blank endorsement).
  • The endorsement must be pure and simple; any condition attached to it is deemed unwritten.
  • A partial endorsement is null.
  • An endorsement to the bearer is also valid.

Types of Endorsement (Modalities)

  • By Literal Content:
    • Complete Endorsement: Meets all the requirements mentioned in the previous section.
    • Incomplete Endorsement: Missing some or all non-essential requirements. This is considered a blank endorsement. The holder may complete the missing requirements or convey the title without completing the endorsement. If the endorsement is to the bearer, it has the effect of a blank endorsement. The person receiving the bill through a blank endorsement has the rights outlined in Article 17 of the Exchange Act and Check:
    1. They can write their name or that of a third party.
    2. They can make another blank endorsement.
    3. They can make a full endorsement.
    4. They can deliver the bill to another person as received. In this case, the law presumes they received a blank endorsement from the signatory.
  • Property Endorsement: Conveys ownership claims.
  • Attorney Endorsement: Grants the endorsee the powers of a trustee to recover the representation judicially or extrajudicially.
  • Endorsement Guarantee: Creates a lien on the title, granting the endorsee, in addition to pledgee’s rights, the powers of an attorney endorsement.