Understanding Bills of Exchange, Promissory Notes, and Cheques

Item 7: Stocks II

The Bill of Exchange

Definition: A bill of exchange is a literal and abstract negotiable instrument containing an express mandate to pay a specific sum of money to a designated person or to their order. It is a document designed for circulation due to its ease of transfer.

Economic Functions

• Provides a means of payment.
• Serves credit functions.
• Acts as a guarantee.
• Can be endorsed to a third party or used as collateral.

Legal Regime Requirements

• Must be issued on stamped paper.
• Must be written in the appropriate language.
• Must include a specific date and place of issuance.
• Must identify the drawee (payer), the payee (beneficiary), and the drawer (issuer).
• Must contain a pure and simple mandate to pay a specified amount in euros.
• Must indicate the maturity date and place of payment.
• Must contain the signature of the drawer.

The Promissory Note

Notion and Economic Function

A promissory note is a literal and abstract title issued to order, containing the unconditional promise of the signer to pay a fixed sum of money at maturity. Unlike a bill of exchange, it follows a dual structure (signatory and holder) rather than a triangular one. The issuer undertakes a direct obligation to pay rather than ordering a third party to do so. It serves as a credit instrument, allowing the creditor to mobilize funds through discounting.

Formal Requirements

• The denomination "promissory note" must be inserted in the text.
• A pure and simple promise to pay a certain sum in euros.
• Indication of the maturity date.
• Indication of the place of payment.
• Name of the person to whom payment is to be made.
• Date and place of issuance.
• Signature of the issuer (signer).

The Cheque

Notion and Economic Function

A cheque is a literal and abstract title-value containing an unconditional payment order issued by the maker to a bank (drawee). It requires the prior provision of funds. Its primary economic function is to serve as a payment instrument to facilitate transactions, rather than a credit document. While bills of exchange are typically signed by those seeking credit, cheques are signed by those who already possess the funds.