History of Time Drafts and Promissory Notes

17th Century: Time Drafts and Promissory Notes

C. Instruments were developed

• The Time Draft

  The time draft was the first development. This type allowed a stated period of time before payment was due. A seller of goods could draw such a draft on the buyer, who would then sign it. By signing the draft, the buyer engaged to pay it when it became due. If the seller did not want to finance the sale by holding the draft until the due date, the seller could transfer it to a lender for less than its face value. The lender could then be paid the face amount of the draft by presenting it to the buyer for payment on the maturity date. The time draft served both as a credit instrument and to transmit funds.

• The Promissory Note

  The promissory note appeared secondly during the 17th century. The debtor signed a writing promising to make payment to a lender on a specific date in the future. The lender could hold the note and await payment at maturity, or, as with the time draft, the lender could discount the note to someone else. The note provided written evidence of the borrower’s obligation to pay money.

18th Century: Money Substitutes

• Throughout the 18th century, most countries did not have paper currency, and several denominations of gold and silver coins were in short supply.

• Increasing mercantile activities forced merchants to adopt money substitutes. Consequently, drafts and notes came to be circulated widely through several hands before ultimately being presented for payment or acceptance.

Commercial Instruments in Mexico

• New Spain Period

  In Mexico, during the New Spain period, the Spanish crown sought to control trade in its overseas territory through the House of Trade (Casa de Contratación), based in Seville.

• Officials in Seville registered ships, cargoes, and passengers coming from Mexico, and upon arrival in New World ports, other officials inspected them as well. But it was also in charge of settling disputes by creating a special Consulate. The law applicable was the Spanish Ordinances to rule commerce, especially those of Bilbao.

• Post-Independence Codes

  It was not until Independence, in 1854, that the first Mexican Commercial Code was issued as the Lares Code. Two more Codes followed in 1883 and 1890, with influences from the Spanish, Italian, and French codes.