Understanding Credit Titles and Bills of Exchange: A Comprehensive Guide
Credit Titles
Credit titles are documents that represent a right, allowing the holder to exercise that right against the debtor upon maturity.
Purpose of Credit Titles
- Establish the right
- Preserve the right
- Transfer or dispose of the right
Elements of a Credit Title
- Document (physical substrate)
- Legal Declaration (personal right)
- Non-Receptive (independent of the debtor’s will)
- Unconditional
- Irrevocable
- Binding (obligation for the legitimate holder)
Characteristics of Credit Titles
- Incorporation (right is embedded)
- Proof (evidence of the right)
- Legitimation (holding the right)
Legitimacy of Credit Titles
The legitimacy of credit titles refers to the power they grant to the holder to demand payment and authorize valid payment obligations.
Requirements for Legitimacy
- Possession of the title
- Presentation to the debtor
- Regular and uninterrupted chain of endorsements (Art. 26)
- Accreditation of legal transfer
- Possession implies ownership
- The debtor must prove lack of ownership to deny payment
- Types of Legitimacy
- Nominative (named)
- To Order (transferable)
- Bearer (possessor)
Characteristics of Credit Title Claims
- Necessity: Possession of the title is required to exercise the right.
- Literalness:
- The creditor cannot demand more than what is stated in the title.
- The debtor cannot use external legal elements to avoid payment.
- Consecration of law (Art. 1, 13, 17, 46 SLL)
- Autonomy:
- The holder acquires a new right, independent of previous holders.
- No accumulation of defects (Art. 7)
- Subjective exemption: The debtor cannot use defenses based on relationships with previous holders.
- Direct link between current holder and original debtor (Art. 28)
- Abstraction:
- The debtor is obligated to pay the holder in good faith, regardless of the underlying transaction.
- Objective exemption: Irrelevance of the underlying transaction.
- Circulation is necessary for abstraction
- Abstract titles: Disconnected from their cause
- Cause: The reason mentioned in the document
Classification of Credit Titles
- By Provision:
- Bills of Exchange: Fixed or determinable sum of money
- Titles to Goods
- Social Equity Securities
- By Issuance and Circulation:
- Nominative
- To Order
- Bearer
- By Issuer:
- Public (68 CCOM)
- Claims against the state
- Public and private companies authorized to issue them
- Foreign governments (if allowed)
- Private
- Public (68 CCOM)
Bills of Exchange (BoE)
A bill of exchange is an unconditional order to pay a fixed or determinable sum of money at a specific time or on demand.
Economic Functions of BoE
- Facilitates exchange (money transfer)
- Instrument of credit
- Means of payment
- Instrument of financing (factoring)
Issuance of BoE
Section 1: Required Statements
- Designation as a bill of exchange (essential)
- Place and date of issuance (essential for maturity and capacity)
- Place determines governing law
- Date determines maturity and capacity
- Unconditional order to pay a fixed or determinable sum of money (essential)
- Name of the payee (essential)
- Name and address of the drawee (essential)
- Place and time of payment (not essential, defaults apply)
- Signature of the drawer
Optional Provisions (Art. 13)
- Currency of payment
- Adjustment clauses (e.g., inflation)
- Interest clause
- Clauses like “returned without charge” or “no obligation to protest”
Blank Bills of Exchange (Art. 11)
- Can be filled in by the holder according to instructions
- Filling against instructions may exempt obligors from payment
- Good faith holders are protected
Adulteration and Alteration (Art. 15 & 16)
- Adulteration: Malicious alteration of the text
- Alteration: Change in the text with consent
Obligations of the Drawer
- Guarantees acceptance and payment (Art. 10)
- Jointly and severally liable with other signatories (Art. 79)
Endorsement (Art. 17)
Endorsement is the act of transferring ownership of a bill of exchange by writing.
Formal Requirements
- Written document
- Signature of the endorser
- On the back of the bill or an attached sheet
Characteristics
- Accessory act
- Formal act
- Pure and simple act (exceptions exist)
Differences Between Endorsement and Assignment
- Endorsement doesn’t require debtor notification
- Endorser is jointly and severally liable (unless disclaimed)
Classification of Endorsements
- By Form:
- Regular: Contains all required information
- Irregular: Missing some information
- Blank: Only the endorser’s signature
- By Purpose:
- Transfer of Ownership: Transfers all rights and obligations
- For Collection: Authorizes the endorsee to collect payment
- In Pledge: Transfers the bill as collateral
Acceptance
Acceptance is the drawee’s written agreement to pay the bill of exchange.
Scope
- Unilateral declaration of will
- Drawee becomes primarily liable
- Must be pure and simple
Formal Requirements
- On the front of the bill
- Word “accepted” or equivalent
- Drawee’s signature
- Date of acceptance
Withdrawal of Acceptance (Art. 44)
- Drawee can withdraw acceptance under certain conditions
Bill of Exchange Guarantee (Art. 46)
A guarantee is a written commitment to pay the bill of exchange if the drawee fails to do so.
Formalities
- Written and signed
- Can be on the front, back, or a separate document
Types of Guarantees
- Limited: Restricted by time, condition, amount, or person
- Unlimited: Guarantor is liable like the acceptor
Maturity of the Bill of Exchange (Art. 48)
- At Sight: Payable on demand
- At a Fixed Term After Sight: Payable after a specified period from acceptance
- At a Fixed Term After Date: Payable after a specified period from issuance
- On a Fixed Date: Payable on a specific date
Payment of Bills of Exchange (Art. 54, 55, 56)
- Presented for payment on the due date or next business day
- Partial payment cannot be refused
- Payment before maturity is governed by lending rules
Partial Payment (Art. 54 Inc. 2)
- Holder cannot refuse partial payment on the due date
- Can refuse partial payment after the due date if less than half the value