Bill of Exchange: Characteristics and Requirements
CHAPTER XX – Bill of Exchange
General
Notion and general characteristics.
A bill of exchange can be defined as a negotiable instrument that incorporates an unconditional order, given by the issuer to another person, to pay a certain sum to another party. It is regulated by Law 19/1985 of July 16, concerning exchange and checks.
There are three subjects:
- The drawer, who issues the document giving the payment order, ensuring compliance.
- The drawee: the person to whom the payment order is directed. They are only bound by exchange obligations when making the statement in the letter itself, accepting payment.
- The policyholder (or taker) of the letter, who is the person to whom the sum indicated in the letter must be paid.
The letter may include, in addition to the original statement of the drawer when it is issued (the warrant or issuance of the letter) and the statement that the drawee accepts it (acceptance) as set out in the letter, other exchange statements: the endorsement, which occurs when the holder passes the letter to a third party, or the guarantee, when a person guarantees payment.
Those who have delivered, accepted, endorsed, or guaranteed a bill of exchange are jointly and severally liable to the debtor. All who have signed a statement in the letter are bound by exchange and are jointly and severally liable for payment. The holder of the bill may proceed against all these people individually or collectively, without being required to observe the order in which they would have been obligated.
Payment made by one of the bound parties does not extinguish the debt of others. The effects of payment by a debtor depend on their position in the letter.
Economic significance
The bill of exchange is one of the securities of major importance due to its frequent use in trade.
Formal Requirements of the Bill of Exchange
It includes an original statement of its issuance and other successive statements (acceptance, endorsement). The original exchange statement is a declaration of unilateral will, giving rise to an obligation imposed on its author. The drawer is perfected when issued.
Not all formal requirements are essential, but the omission of one of them is supplemented with criteria established by the law itself.
Essential formal requirements of the letter:
- The term “bill of exchange” inserted in the text of the title, expressed in the language used for writing.
- The pure and simple mandate to pay a certain sum; it must contain an unconditional order of payment of a sum.
- The name of the person who has to pay (drawee). This mention is necessary because it indicates the person who directs payment, usually appearing next to the name and address.
- The name of the person who has to make the payment or to whose order it is to be made. This person is entitled to possession of the document, and their name must be indicated on it.
- Date of issuance of the letter, mentioning the date and place at which it is drawn.
- Signature of the issuer of the letter (drawer), endorsed by the text of the original exchange statement.
Formal requirements for the exchange of a natural original statement:
- Indication of maturity: its importance is obvious in the case of a payment order. If the maturity of the bill is not expressed, it shall be deemed payable on demand (at the time of presentation, it must be paid or accepted).
- Indication of the place of payment of the bill. If this place is not specifically stated, it is understood that the place designated next to the name of the drawee is considered the place of payment and the drawee’s address. If nothing appears next to the name, the letter is not valid as such.
- Indication of the place of issuance of the letter. This can be omitted, as it is understood that it has been issued in the place designated next to the name of the drawer. If not, the document will not serve as a draft.
Issuance of the Letter and Extracambiary Relations
The issuance of the letter takes for granted the existence of legal relationships that precede it. These are described as underlying or core and are said to be the cause of the issuance of the letter. The law responds to the abstract exchange of the title. Promissory notes, like bills of exchange, are demand titles, transferable by endorsement, unless specifically instructed otherwise by a “not to order” clause or equivalent.