Commercial Paper Fundamentals: Roles, Maturity, and Endorsement

Definition of a Bill of Exchange

It is a document whereby a person, called the Drawer, instructs another, called the Drawee, to pay a certain amount of money, at a specific time and place, to a person known as the Payee, Holder, or Beneficiary.

Understanding the Bill Guarantee (Aval)

The guarantee (or aval) is the act of undertaking to pay the bill jointly with the drawer. This ensures that the drawee will pay the amount owed; otherwise, the guarantor is responsible for the payment. The Guarantor is the party providing the surety, and the Guaranteed party is the one whose obligation is secured. The guarantee may be limited or unlimited.

Key Roles in a Bill of Exchange

• Drawer: The person issuing the bill and ordering the drawee to pay.
• Drawee (Librado): The person whose duty is to pay the amount stated in the bill, on the specified day and location.
• Payee (Holder): The person entitled to collect the bill at the time of maturity and in the correct place.

Expressing the Bill Amount

The amount must be recorded in words, followed by the currency (e.g., "euro"). Should the quantity expressed in numbers be different from the quantity expressed in words, the amount stated in words will be considered valid.

Stating the Maturity Date

Maturity can be stated in several ways:

• At Sight: The bill will be payable at the moment when the holder decides to submit it to the drawee.
• At a Fixed Term: The term is often counted in days or months, using expressions like "at a day's sight" or "months ahead."

Place of Issue and Drawing Date

• Place of Issue (Deliverance): The name of the population in which the bill is extended. This usually coincides with the residence of the drawer.
• Drawing Date: The specific date on which the bill is issued. This serves to determine the maturity when the bill has been rotated to a deadline date (e.g., "months ahead").

Calculating Maturity Periods

The calculation of maturity depends on how the term is expressed:

• If the bill is expressed in days ahead, the period begins to run from the date of acceptance.
• If the bill is expressed in months ahead, the period begins to run from the date of the warrant (drawing date).

Domiciliation of Payment

The address for payment specifies where the payment must be made. You can specify any place of payment, although bills are usually domiciled in banks or credit institutions.

Bill Acceptance: Definition and Necessity

Acceptance is the act by which the drawee commits to the payment of the bill at maturity. Acceptance is essential in cases where the bill is drawn at a term after sight, as the acceptance date starts the maturity period.

Defining the Endorsement Process

If the holder of the bill cannot or will not handle collection, or simply if they owe a debt, they can assign the bill to another person by endorsement, thereby transmitting the property rights of the bill.

When the holder transfers or endorses a bill, they become the Endorser. The new owner becomes the Endorsee, who may pass it again. The endorsement of a bill can be unlimited in number, but it must be total (transferring the entire amount).