Legal Requirements for Bills of Exchange and Draft Endorsement

Essential Requirements of a Bill of Exchange

Natural Requirements for a Valid Draft

• Signature of the Drawer: The document must include the signature of the drawer.
• Indication of Maturity (Due Date): This specifies when the payment is due.
  • A fixed date: A specific, determined date.
  • In a period from the date: Example: 3 months from the date of issuance. Time is required to compute the date of payment.
  • Due to view (Sight Draft): The letter is due upon its presentation to the drawee (usually within 1 year).
  • At a longer period after sight: Time calculated from the date of submission of the letter for acceptance.

  If you do not specify a deadline, the draft is considered payable "at sight."

• Place of Payment:
  • If the place of payment is not specified, the location designated by the name of the drawee shall be deemed the place of payment.
  • Crucial Requirement: If the letter does not indicate the address of the drawee, this document is not a valid bill of exchange.
• Place of Issuance of the Letter:
  • If the place of issuance is not stated, the place designated by the name of the drawer is considered the place of issuance.
  • Crucial Requirement: If no location is shown near the name of the drawer, the document is not considered a valid draft.

Fiscal Requirements and Exchange Clauses

Fiscal Requirement

The issuance of a bill of exchange is subject to the payment of a tax (stamp duty).

Key Clauses

• Clause of Address (Power Clause): Refers to the terms of address (Art. 5 LC - Law of Exchange).
• "Free of Charge" Clause (Without Protest): For the purpose of exercising the right of recourse, it is not necessary to make a protest or equivalent statement.
• "Not to Order" Clause: This constraint means the letter can only circulate by assignment, not by endorsement.
• Prohibited Clauses: Those that are contrary to the Law of Exchange (LC) or the fundamental principles configuring the draft.

Understanding Endorsement

Definition and Function of Endorsement

Endorsement is the typical formula or method of circulating a draft. It is defined as the statement written on the letter itself and signed by its former owner (the endorser), who intends to convey the letter and all rights associated with it to a new party called the endorsee (Endosatario).

Requirements and Form of Endorsement

Requirements for Valid Endorsement

The endorsement must be:

1. Pure and Simple: It should not be subject to conditions. If any condition is included, it must be understood as not written (Art. 15 C. Com. - Commercial Code).
2. Total: It must be for the full amount of the letter.

Liability and Form

• Endorser's Liability: By making the declaration of endorsement, the endorser guarantees the acceptance and payment of the draft against the drawee and against subsequent endorsees.
• Form of Endorsement: This is executed by inserting the signature of the endorser in the text of the letter, accompanied by the delivery of the document.
• Blank Endorsement: Article 16 of the Exchange Act states that a blank signature placed on the back of the bill of exchange is equivalent to a valid endorsement.