Debt Securities and Credit Titles: A Comprehensive Study

Posted on Dec 1, 2024 in Law & Jurisprudence

Debt Securities and Credit Titles

Introduction

Credit titles establish a claim held by a creditor, who is entitled to compel the debtor to make payment. Debtors require these documents to exercise their rights.

Definition of Debt Securities

Debt securities are commercial instruments, and all transactions related to them are considered acts of trade. These documents are essential for exercising the rights they represent.

Characteristics of Credit Titles

  • Documented
  • Literal
  • Intended for circulation
  • Necessary to exercise the rights they represent

Types of Debt Securities

According to Circulation

  • Bearer
  • Nominee

According to Content

  • Bill of Exchange
  • Promissory Note
  • Certificate of Deposit
  • Check
  • Bond
  • Shares of Garment

Registered Securities

These documents are issued on behalf of a person whose name is recorded in the document. The owner is the person in whose favor it is issued.

Assignment of Registered Securities

Assignment is a voluntary and free legal act designed to convey property or rights from one owner to another. Transfer of registered securities can occur through:

  • Delivery of the document itself
  • Endorsement by regular meeting

Endorsement

Endorsement is the act of writing that allows the transmission of the document to third parties. It involves an endorser (the person making the endorsement) and an endorsee (the person receiving the endorsement).

Features of Endorsement

  • Accessory
  • To order
  • Non-negotiable
  • A non-negotiable endorsement can be transferred through a regular meeting with the appropriate authority.

Stopping Endorsement

Endorsement can be stopped by adding a “not negotiable” clause.

Pay to the Order Of

All registered securities are considered “to order” because they should be paid to the person named in the title.

Title to the Command

A title to the command is one where the obligation is enforceable to the order of the first taker of the document, or in case of transfer, to the order of the last legitimate purchaser or holder.

Types of Endorsement

  • Regular
  • Blank
  • In Procurement
  • In Warranty

Taker and Drawer

The taker is the person who receives a title change or a signatory under the indenture. The drawer is the person who issues the bill of exchange, check, or promissory note.

Regular Bearer Endorsement

A regular endorsement is used daily. It requires a literal signature; if absent, it must be zeroed.

Requirements for a Regular Endorsement

  1. Endorsee Name
  2. Endorser Signature
  3. Type of Endorsement (Freehold, Warranty, or Proxy)
  4. Place and Date

Missing Endorsement Requirements

  • Missing Endorsee Name: Becomes a blank endorsement.
  • Missing Endorser Signature: Invalidates the endorsement.
  • Missing Endorsement Type: Considered a property endorsement.
  • Missing Place: Assumed to be the endorser’s home.
  • Missing Date: Assumed to be the document’s date.

Blank Endorsement

A blank endorsement includes the endorser’s signature and allows for the conversion of a nominative title to bearer.

Property Endorsement

A property endorsement is an ordinary endorsement that transfers ownership of the document.

Endorsement in Procurement

An endorsement in procurement does not transfer ownership. It is used for collection purposes only.

Endorsement in Warranty

An endorsement in warranty does not transfer ownership. It is used as a pledge in a credit agreement.

Bearer Instruments

A bearer instrument does not name a specific holder. Features include:

  • Not transmitted to a particular person
  • Includes the phrase “bearer”
  • Widely circulated

Bill of Exchange

A bill of exchange contains an unconditional order from the drawer to the drawee to pay a sum of money to the beneficiary at a specific time and place.

Parties Involved in a Bill of Exchange

  • Drawer: Issues the bill.
  • Drawee: Ordered to make the payment.
  • Beneficiary: Receives the payment.

Literal Requirements of a Bill of Exchange

  1. Mention of “bill of exchange”
  2. Place and date of subscription
  3. Unconditional order to pay
  4. Drawee’s name
  5. Place and date of payment
  6. Payee’s name
  7. Drawer’s signature

Characteristics of a Bill of Exchange

  1. Named
  2. Transmitted by endorsement
  3. Subject to objection
  4. Subject to change action

Interveners and Recomendatarios

Interveners are people involved in a bill of exchange who accept or pay in place of the drawee. Recomendatarios are people named on the bill of exchange for acceptance and payment, or just payment, in the drawee’s absence.

Promissory Note

A promissory note contains the subscriber’s (debtor) unconditional promise to pay a sum of money to the borrower (lender) at a specific time and place. A guarantor is typically required.

Literal Requirements of a Promissory Note

  1. Mention of “promissory note”
  2. Unconditional promise to pay
  3. Payee’s name
  4. Time and place of payment
  5. Date and place of signing
  6. Subscriber’s signature

Features of a Promissory Note

  1. Annual interest payment
  2. No interest payment on arrears
  3. Three-year prescription period
  4. Subject to protest
  5. Creditor responsible for protest upon non-payment

Check

A check is a credit title where the drawer unconditionally orders the drawee (a credit institution) to pay a sum of money to the beneficiary.

Features of a Personal Check

  • Accessory
  • To order
  • Non-negotiable
  • Transferable by endorsement or regular assignment

Features of a Cashier’s Check

  • Bearer instrument
  • Widely circulated

Lost or Misplaced Checks

  • Demand: Request a new check issuance.
  • Cancellation: Request termination.

Transmission of Cashier’s Checks

Cashier’s checks are transmitted by delivery.

Requirements for Issuing a Check

  1. Available funds
  2. Bank contract for check issuance
  3. Bank authorization
  4. Deposit of funds
  5. Bank’s obligation to provide a checkbook
  6. Maintaining sufficient funds

Requirements for Filling a Check

  1. Mention of “check”
  2. Place and date of issue
  3. Unconditional order to pay
  4. Bank name
  5. Place of payment
  6. Drawer’s signature

Features of a Check

  • Can be nominative or bearer
  • Endorser obligated to the drawer
  • Endorsed checks in favor of the drawee are non-negotiable
  • Six-month prescription period

Check Cashing Deadlines

  • Same place of issue: 15 days
  • Different parts of the republic: 1 month
  • International: 3 months

Penalties for Non-Payment

The drawer must pay damages of 20% of the check’s value.

Endorsement in Favor of the Drawee

Checks can be endorsed in favor of the drawee (bank), but they become non-negotiable.

Special Checks

  1. Crossed Checks: Intersected by two parallel lines, indicating payment only to a lender. Non-negotiable.
  2. Checks for Credit Note: Marked “for deposit into an account,” prohibiting cash payment. Non-negotiable.
  3. Certified Checks: Certified by the bank, guaranteeing sufficient funds. Non-negotiable.
  4. Cashier’s Checks: Used by banks for internal payments. Non-negotiable.
  5. Traveler’s Checks: Payable by a credit institution or its branches, domestically or internationally.