Bill of Exchange: History, Concept, and Legal Framework
History of the Bill of Exchange
The bill of exchange is emphasized for three historical periods:
- Italian Period (14th Century): Arising from the need of merchants carrying values. This period is characterized by the letter of transfer, transport, or transportation.
- French Period (17th Century): Acceptance and endorsement were consolidated under French law.
- German Period (19th Century): Changes in German law added features to the bill of exchange that we have today.
Concept
A bill of exchange is a title of credit characterized by a payment order issued by the drawer against the drawee for the benefit of a borrower.
Legal Regime
- Uniform Law – Decree 57.663/1966
- Decree 2.044/1908: Regulates bills of exchange and promissory notes. Subsequent to this, Brazil joined the Treaty of Geneva, where a uniform law should be created for the signatory countries, but with some reservations. Thus, the Uniform Act applies to Brazil, alternatively to the decree and lastly the Civil Code.
- Civil Code – Article 903: The Civil Code is only secondarily applicable, and some of its applications are not used.
Characters
- Required:
- Drawer: Sends the bill of exchange, creates it.
- Drawee: Against whom the order was drawn.
- Borrower: The person to whom the letter of credit is created.
Any of these characters can be a person or entity.
- Optional:
- Endorser
- Guarantor
They are considered optional as they may not appear in the title of credit. Most often, they do appear.
Essential Requirements
According to Uniform Law, Article 1, these requirements are essential because if any are missing, there is no bill of exchange. The time of payment may be indefinite since, if not specified, it is presumed to be at sight.
Acceptance
Concept
The act by which the drawee agrees to comply with the payment order. With this act, the drawee becomes the main obligor/debtor.
Characteristics of the Act of Acceptance
- Optional: The person may decline to accept it. A retailer is not liable for another tenant, and will not be obliged to accept the bill of exchange. Therefore, it is optional, and no legal burden may be applied for non-acceptance.
- Possible: Its absence does not mischaracterize the document as a title of credit; even without acceptance, it remains a security.
- Subsequent: It is an act committed after the issuance.
Acceptance and the Act of Leading to Acceptance
Acceptance is a voluntary act. Leading to acceptance is:
- Generally Optional: Usually, leading to acceptance is a voluntary act because the borrower can make payments directly to the order.
- Exceptionally Required:
- Term of Sight: When the maturity of the established fixed-term view. Maturity begins to run once accepted. Here, if the drawee does not perform the acceptance, they can be taken to protest for non-acceptance. While acceptance is not mandatory, what may be required is just to accept it.
- Mandatory Presentation Clause: When there is a mandatory presentation clause.
If Not Submitted, Obligors Cannot Be Charged: If there’s a mandatory presentation clause, it should be brought to acceptance. If not done, you lose the right to charge the obligors (guarantors and endorsers of the endorsers) and may only charge the principal debtor, since it does not lose the nature of a negotiable instrument, i.e., a writ of execution.
Deadline to Submit
It is possible for the drawer to set a deadline.
- Endorser Can Reduce: While the drawer sets the deadline, the endorser can reduce it. This is the period that gave the title to be taken for acceptance.
“Not Acceptable” Clause
An embedded “not acceptable” clause means the title cannot be taken for acceptance and can only be taken for compliance. It aims to avoid the acceleration of the title of credit.
- Only Drawer: Only the drawer can insert this clause to avoid early termination.
Term of Sight (Uniform Law, Article 24)
It is a legal power of the drawee. The letter was presented for acceptance, but at the moment, it cannot be considered. So, if it was presented today, it is agreed to bring it on a future date. The term of sight does not apply to maturity; it is just to say whether it is accepted.
Partial Acceptance
Partial acceptance is possible. It is not in the decree, but the law allows it. The drawee is the principal debtor for what was accepted, and for what was not, the drawer is the principal debtor, and there is an anticipation of debt.