Understanding Credit Titles and Liabilities
Concept of Liability
Liability is understood as a legally binding obligation, not just a legal fact. It involves a creditor and a debtor, focusing on a provision. This establishes a legal relationship where the debtor must give, do, or not do something. Dividend rights differ from real rights, as holders of dividend rights do not exercise immediate power over something, unlike real rights, because liability is personal.
In a sales contract, the lender depends on the contract type.
Sources of Bonds
Bonds originate from contracts, unilateral declarations of intent, and unlawful acts, serving as security. The primary source is the law, making these secondary sources.
Historical Aspects of Credit Emergence
- Goods in kind – commodity exchange
- Currency – abstract values
- Documents representing value – civil business law
- Economic function of debt
Concept of Credit Title
According to Cesare Vivante, a credit title is a document required to exercise the right, literal (art. 887 CC) and self-employed therein.
As per CC, art. 887, a credit title is effective only when it meets legal requirements (“Typicality”), making the list exhaustive.
- Credit titles represent financial obligations and should not be confused with general obligations.
Four Main Types of Credit Titles
Most Common:
- Bill of exchange: A payment order.
- Promissory note: Originated in Roman times, developed by Greeks with chirographis (those who could read and write), representing simple debt obligations in writing.
- Check
- Duplicate: Unique to Brazilian law, created by art. 219 of the Brazilian Commercial Code.
Other Bonds:
- Improper debt securities, including warrant, freight knowledge, stock, debentures, etc.
Letters of Credit and Obligations
- Extra exchange origin: Buying and selling between individuals paid with a check; credit is the title of foreign exchange, but issues raised above exchange are extra.
- Source exchange only: Approval (Surety and bail guarantee obligation; approval is the right exchange rate) and endorsement (Obligatory for moving credit; endorsement is right exchange and transfer of credit in civil law). Obligations may exist independently of currency.
Letters of Credit as Extrajudicial Security
According to CPC, art. 585, I, bill of exchange, promissory note, debenture, and check serve as extrajudicial security.
Attributes of Credit Titles
- Traded: Credit titles can be negotiated more easily than civil obligations. Checks can be negotiated by endorsement before expiration.
- Run: Ability to execute credit more easily than civil obligations.
General Principles of Cambiário Law
These principles enhance marketability and enforceability of bonds, providing greater security, as conceptualized by Cesare Vivante.
Cartularity
The document is required (indispensable) to exercise the right represented in the credit title.
Literality
The law must be literal. Foreign rights are those written in the document. Rights or obligations not written in the title are not considered exchange.
Autonomy
The law should be autonomous, encompassing three ideas:
a) Independence between obligations
Obligations within the title are independent. Invalidity of one does not affect others (e.g., guarantor’s obligation is independent of the issuer’s).
b) Abstraction
The obligation is untied from the cause of issuance, especially when the bond runs.
c) Unenforceability of personal exceptions
Personal defenses are not applicable in good faith. The endorsee cannot be opposed by exceptions against the issuer.