Bill of Exchange Fundamentals: Parties, Endorsement, Maturity

The Bill of Exchange: Definition and Function

A Bill of Exchange is a document issued by a natural or legal person (the Drawer) ordering another person (the Drawee) to pay a certain amount of money, on the date indicated, to the designated person (the Payee).

A) Parties Involved in the Bill of Exchange

• Drawer: The person who issues the Bill of Exchange and gives the order to pay the Drawee. It is essential that the Drawer signs the document.
• Drawee and Acceptor: The Drawee is the person ordered by the Drawer to pay the Bill. When the Drawee accepts the Bill through their signature, they become the Acceptor.
• Payee/Holder (Tomador/Tenedor): The person designated by the Drawer to receive payment. The Drawee pays the Payee. The Holder of the Bill may endorse it to third parties, pending acceptance or submission to the Endorser and collection.
• Endorser: The person who owns a Bill and transfers it to another party (the Endorsee) through endorsement.
• Endorsee: The person who receives the Bill via endorsement. They can subsequently transfer their rights through further endorsement.
• Avalist (Guarantor): The person who guarantees the Drawee will pay the cash amount of the Bill on its expiration date. Otherwise, the Avalist is liable for payment.

B) The Endorsement Process

Endorsement is a clause inserted into the Bill of Exchange that transfers its ownership. It is valid for endorsement by Drawers, Drawees, or any other party involved. Each endorser guarantees the acceptance and payment to subsequent holders.

Types of Endorsements

• Blank Endorsement: This endorsement does not require the signature of the Endorsee; only the signature of the Endorser is required on the back of the Bill.
• Return Endorsement: This occurs when subsequent endorsements cause the Bill to return to the Drawer or one of the previous Endorsers. The Bill may still be endorsed again.

Endorsement Clauses

Endorsements may include specific clauses:

• "To Order" Clause: Means the Bill can be transmitted by endorsement.
• "Not to Order" / "Restrictive" Clause: Means the Bill is not negotiable by endorsement.

C) Determining the Maturity Date of the Bill

The maturity date determines when the Bill of Exchange must be paid. There are several ways to fix this date:

• Maturity at a "Fixed Date": The Bill matures on the specific calendar date indicated.
• Maturity "A Period After Date": The maturity date is calculated based on a specified term starting from the day following the date of issuance.
• Maturity "At Sight": The Bill is payable upon presentation for collection. Unless otherwise stated by the Drawer, it must be presented within the year following its issuance.
• Maturity "A Period After Sight": The payment date is fixed by calculating the specified term starting from the date of acceptance or, failing that, from the date of protest.
• Maturity with Restrictions: The Drawer may stipulate that a Bill should not be presented for payment before a certain date, even if a fixed maturity date is determined.

Note on Maturity Types

A Bill of Exchange can only be drawn with one of the following maturity types: a fixed date, a period from the date, or a period from sight (At Sight is also a type of period from sight, zero days). Typically, payment of the Bill is done for the full amount.