Credit in Economics and Law
Economic and Legal Concept of Credit
Economic
Credit involves exchanging present value for future value. This exchange is distinguished by time and trust, as delivery isn’t simultaneous and reciprocal, necessitating trust in future obligation fulfillment.
Legal
The transfer of a thing’s ownership from creditor to debtor, with consideration deferred, meaning the debtor’s corresponding provision is delayed.
General Law on Negotiable Instruments and Credit Operations
The sender agrees to make a sum available to the borrower or incur an obligation on their behalf. The borrower uses the credit as agreed, returning the sums or covering the obligation amount, plus interest, benefits, expenses, and commissions. (Art. 291)
Exchange Law as an Autonomous Legal Discipline
Commercial law arose due to civil law’s inability to meet the needs of resurgent trade in the late Middle Ages. It exists as a specialized field alongside civil law.
Legal Function of Claims
A legal fiction arising from commercial needs, it’s the validity of law stated in a document, conditional on the document’s existence. Credit claims serve as documents that demonstrate and convey the right contained within.
Legal Status of Credit Instruments
These are the things credits trade. Issuance, endorsement, guaranty, acceptance, and other recorded operations are acts of commerce.
Doctrinal Concept of Credit Instruments
Cesare Vivante notes that a receivable is a document required to exercise the right literally expressed therein.
Credit Instruments as Commercial Items
Commercial law stipulates their merchantability isn’t altered by whether traders subscribe to or own them, confirming their role as objects themselves, independent of individuals.
Credit Documents as Constituent Instruments
Constituent instruments are indispensable and essential to a right’s existence; the right doesn’t exist without the document.
A credit document is a constituent instrument because the document is necessary for exercising the right.
Legal Concept of Credits
Credits are documents necessary to exercise the right literally stated within.
Essential Characteristics of Credit Instruments
Legitimation, literalness, autonomy, and circulation.
Built for the Right in the Title
Personal Titles
Also called corporate titles, their main purpose isn’t a credit right but granting the holder membership in a corporation.
Obligational Titles
Or credit titles proper, their main purpose is a credit claim, granting the owner the right to demand payment from subscribers.
Royal Titles
Also called tradition or representative titles, their main purpose isn’t a credit claim but a real right over the goods covered by the title.
Document Substantivity
Substantivity provides a fourth classification criterion: major and accessory titles.
Full Performance Securities Litigation
Fully valid documents without external conditions, often exemplified by bills of exchange, promissory notes, and checks.
Limited Evidence of Effectiveness
These documents aren’t sufficient to exercise the right; they require external compliance, derived from their text or legal provisions.
Specific Titles
Exist due to the rights and obligations mentioned within.
Abstract Title
These documents, also known as business complements, leave no causal trace, so the holder isn’t affected by circumstances influencing the causal business.
Registered Titles
Issued in a specific person’s name, recorded in the issuer’s register, and transferable only by endorsement, delivery, and registration.
Titles to Order
Issued to a specific person(s) and transmitted by endorsement and delivery.
Bearer Bonds
Bearer bonds aren’t issued to a specific person and don’t contain the “to bearer” clause. They are effectively anonymous titles.
Endorsement
The ultimate act of transferring a credit title, existing exclusively within exchange law.
Blank Endorsement
An endorsement with only the endorser’s signature. Any holder can fill in their name or a third party’s. A blank or unfilled endorsement allows transfer without naming an endorser. (Art. 32)
Partial and Conditional Endorsement
Partial endorsement: Endorsing a fraction of the document’s rights, complicating circulation and creating uncertainty about future forks.
Conditional endorsement: Full transmission subject to pledge, procurement, or chance, affecting the transferred right.
Classes of Endorsement
Endorsement transmits titles in ownership, procurement, and security.
- Endorsement in ownership: Transfers ownership and all inherent rights. The quintessential ownership transfer endorsement.
- Principle of exchange solidarity: Ownership doesn’t require endorsement in solidarity with the endorser, except where legally mandated. Used for recourse.
- Endorsement in procurement or collection: Clauses like “in procurement” or “for recovery” grant power to present for acceptance, cashing, out-of-court endorsement in procurement, and protest, but not ownership.
Difference Between Endorsement in Procurement and Mandate
- Endorsement in procurement is a pure form of exchange representation, unlike mandate.
- Endorsement is formally documented; mandate can be verbal.
- Endorsement is a unilateral declaration of will; mandate is a contract.
- Endorsee’s powers in procurement don’t end with their death; mandate does.
- Endorsement revocation requires cancellation; mandate revocation requires third-party notification.
Endorsement in Warranty or Guarantee
Grants the endorsee the rights and obligations of a lienholder, including powers of endorsement in procurement.
Form of Endorsement
Endorsement Return
The acquirer can verify endorsements and receipts prior to their acquisition but after the previous one.
Endorsement Without Responsibility
Adding “without my responsibility” assists only the endorser but creates distrust in previous endorsers’ solvency.
Judicial Endorsement
If ordinary endorsement is impossible, voluntary jurisdiction allows court annotation as holder, justified by proof of title acquisition.
Terms of Payment in Exchange
Paying All or Part of a Credit Instrument
Full payment: Upon document delivery, releasing the debtor upon confirming the holder’s identity and unbroken endorsement chain.
Partial payment: Holder must receive but not deliver the title, recording the amount received and issuing a separate receipt.
Payment by Appropriation Title
Depositing the due benefit with a judicial body for delivery to the creditor. It protects the debtor from a creditor’s negative behavior causing arrears.
Advance Payment of a Credit Instrument
The holder isn’t obligated to receive advance payment, as they might be unable to safeguard the received value.
Partial Payment of Credit by a Third Party
Bills of exchange and promissory notes offer various possibilities for third-party payment.
Payment of an Obligation Through Joint Obligors
Exchange solidarity rules apply specifically to bills of exchange and promissory notes.
Effect of Lack of Timely Payment of a Credit Title
Delayed payment empowers the holder to demand court-ordered payment or delivery of goods.