Bills of Exchange: Key Concepts and Functions

What is a Bill of Exchange?

A bill of exchange is a commercial document wherein one person, the drawer, instructs another person, the drawee, to pay a specific sum of money on a particular date or at a concrete maturity. The bill of exchange can be drawn by the drawer for their own benefit or for a third party, known as the payee or beneficiary, to whom the drawer transfers or endorses the bill.

Types of Bills by Maturity Date

A bill of exchange can be classified based on its payment terms:

• Payable on Sight (At Sight): Payment is due upon presentation of the bill.
• Payable at a Fixed Date: The specific due date for payment is recorded on the bill.
• Payable at a Term from Date: Maturity occurs after a specified period from the date indicated on the bill. If the period is set in months, it is computed from date to date, not necessarily counting only business days unless explicitly stated.
• Payable at a Term from Sight: The bill is payable after a specified period from the date it is accepted by the drawee.

Key Parties in a Bill of Exchange

The primary individuals involved are:

• Drawer: The creditor who issues the bill of exchange, ordering the debtor (drawee) to make the payment.
• Drawee: The debtor who is instructed to pay the bill of exchange upon its maturity date. The drawee can accept or reject the payment order. If the drawee accepts the obligation to pay, they become the acceptor.
• Payee (also Holder or Beneficiary): The person who is in possession of the bill of exchange and to whom the payment should be made.

Other Involved Parties in a Bill

Other parties may also be involved:

• Endorser: A person who endorses (signs over) a bill, thereby transferring it to a third party.
• Endorsee: The person to whom the bill is endorsed.
• Guarantor (or Avalist): A person who guarantees the payment of the bill of exchange.

Document Requirements for Validity

For a bill of exchange to be valid, it typically must be issued on an official form or stamped paper provided by the state. The value of the stamp duty is usually proportionate to the amount of the bill. Payment of this stamp duty is essential for the bill's legal validity.

Common Clauses in Bills of Exchange

Bills of exchange may include various clauses, such as:

• "No Protest" (Sin Protesto) / "Without Expenses" (Sin Gastos): These clauses can affect the procedures and liabilities in case of non-payment. For example, "No Protest" may mean that formal protest by a notary is not required to preserve recourse against certain parties if the bill is dishonored. "Without Expenses" means the holder cannot claim protest expenses.
• "Not Transferable": This clause restricts the bill from being endorsed or transferred to another party, making it payable only to the named payee.
• Interest Clause: Specifies that interest is payable on the principal amount of the bill, indicating the rate and commencement date.
• "Drawn on Oneself": Indicates that the drawer and the drawee are the same person. This is common when a company draws a bill on its branch.
• "To My Own Order": Indicates that the drawer and the payee are the same person. The drawer makes the bill payable to themselves.