A security whose issue and circulation is regulated by bill of exchange law is called a bill of exchange. Its purpose is to satisfy in monetary terms the debt of one person (that is, the debtor) to another person (that is, the creditor). Rights to this type of securities may be transferred to a third party without the consent of the person who has signed it, but on the order of the owner.
The bill is recognized as the original form of all securities. It is the first, the earliest security in the world of commodity circulation, from which all other types of securities to one degree or another have evolved. And the bill itself replaced the debt receipt.
Today, the bill is still active, but its place in the world of securities is more than modest in comparison with bonds or stocks.
What's the Difference
A bill is a debt security, while a share is an equity security. They are united only by loan capital, and not its productive form or commodity.
A promissory note is distinguished from a bond by several features arising from their real forms of existence as securities:
- the bill can be used as a means for settlements or payments, which is absolutely prohibited for bonds;
- the issue of bonds must be registered by the state, for bills it is not provided;
- a bond can be sold under a contract of sale, a bill of exchange only by order of the person who owns it;
- a bond is an issue paper, a bill has a private character (although large lots of bills are found on the market), etc.
Two forms of bills
These are universally recognized types - a simple and transferable bill of exchange.
The first, sometimes called a promissory note, is an unconditional obligation (or unconditional) to pay monetary debt to the creditor. And only on the conditions prescribed in the bill. In fact, this is a payee debt receipt.
A promissory note is drawn up based on the results of a commodity transaction, if the buyer does not have the amount necessary to pay. Instead, this security is written out, according to which the seller, after a specified period of time, will have to receive the amount agreed in a promissory note. Upon the expiration of the term, the bill holder presents the bill (that is, the debtor) to the buyer, receives his money. And the debtor receives this security, which is now considered repaid. A promissory note is issued in the name of the creditor.
The second bill, called draft, is an order deemed unconditional from the person who issued it to his debtor with the condition to pay the amount written in paper to a third party (bill holder). That is, a bill of exchange is a written document containing an order to transfer the specified amount to a third party.
The meaning of a bill of exchange is clear from the name - it transfers debt from one person to another. In most cases, the drawer (the one who writes the paper) is simultaneously the debtor of one person and the creditor of another. Therefore, a bill of exchange prescribes the requirement for the debtor to pay not to the drawer, but directly to the creditor.
Bank details as security
Every security is a strictly formal document. Therefore, the design of a bill of any type is subject to special rules.
Details of a promissory note:
- a bill label, that is, an indication that it is a “promissory note”;
- the obligation to pay a certain amount is not stipulated by anything;
- the amount is indicated in numbers and in words (corrections make the paper invalid);
- terms of payment of debt;
- meeting place with a bill holder;
- the name and address of the payee (or by order of which the payment will be made);
- place and full date of drawing up the bill;
- signature of the drawer (only with his own hand).
Details of a bill of exchange differ only in a bill mark (“bill of exchange”), an unconditional requirement to pay a certain amount on this paper, as well as the name of the payer and his location.
Amount as a requisite of a bill of exchange
In both a simple and a bill of exchange, the amount of debt is indicated in numbers and duplicated in words. If they are inconsistent, the bill is considered issued in the amount indicated in words. If there are several of them, a smaller amount applies. Regulatory requirements do not allow breaking a debt into several parts or terms. For the bill is recognized as an abstract obligation to pay the agreed amount, regardless of the reason for its issue.
Issue of a bill with the amount indicated with interest is allowed. They can be included in the total payment or indicated separately. Moreover, the interest rate will be valid if the bill has a payment deadline upon presentation or at a specific time from presentation. In other cases, even if the rate is indicated, the payer has the right not to pay interest.
Debtor's address and name
If the payer on the bill is a registered legal entity, then the full legal address and name must be entered as the requisite. If the debtor is a natural person, then his name, surname and patronymic, as well as the place of registration and passport data, are fully indicated. For a promissory note, this is enough. In a bill of exchange, the drawer and debtor are different people. Therefore, in this paper, the second address and the name of the person are added to the details.
Payment condition
A promissory note is written by the debtor, so in a paper he spells out his obligation to pay the required amount.
A bill of exchange is issued by the creditor to the payer, but with the condition of paying the debt to a third party - the creditor of the drawer. Therefore, a bill of exchange does not contain an obligation, but a requirement to pay a debt.
Maturity dates of a bill
Legislatively, they are established as follows:
- “Upon presentation.” That is, as soon as the bill is presented, payment is made. This should happen within a year from the date of issue of the bill, if it does not stipulate a specific date. In case of delay, the bill becomes invalid.
- "At a certain time after presentation." Payment of the debt occurs after the agreed time after the date of presentation. This must be fixed on the front side of the bill of exchange form. This mark will be the actual consent to the return of the debt or the day of protest in acceptance.
- "At a certain time from the drawing up" - the return occurs after the specified number of days from the date of drawing up the bill.
- “On a specific day” - the payment of a debt must be made on the day specified in the security.
If there is no deadline, the bill can be presented for payment within a year from the date of its issuance. If the paper does not indicate the date and time of payment at the same time, the bill is invalid.
Place of debt repayment
Unless otherwise specified in the security, the place of payment shall be the location of the debtor. If the place of payment and the location of the payer are not entered in the bill, then it becomes invalid. As well as at the indicated several places of payment.
Date and place of paper
The location of the debtor and the place of issue of the bill may not coincide. However, if the place of compilation is not indicated in the form of the bill of exchange, then the paper is deemed to have been written out in the place next to the name of the debtor. If the bill does not contain any of these places or it does not exist, then the security is invalid.
The date of drawing up a bill of exchange is a very important attribute, since it begins the countdown of the payment term and the period of the obligation for the bill. It is recognized as invalid if an unrealistic date of compilation is indicated.
Signature
It is placed below the full name and location of the debtor in the lower right corner, and only by hand. If the document is signed by a legal entity, then in addition to its signature, the signature of the chief accountant and company seal are required. The invalidity of the bill will be recognized in the absence of a signature / signatures. And also if the document was signed by non-existent persons or not having the right to sign it.
Guarantees
For both a simple and a bill of exchange, the regulations provide for an additional guarantee of payment for the accepted security by issuing a bill guarantee (aval). It is provided by a third party (most often a bank) both for the main payer and for any other person who is liable for the bill.
Aval is a special inscription on the front side of a document or on an additional sheet (allonge). It indicates: for whom the bank guarantee was issued , the date and place of issue. It also puts the seal of the bank and the signatures of its first officials. "Count as Aval" - this expression is recognized as classic. But it is possible to use any other that is appropriate in meaning.
The bill guarantor (avalist) bears joint and several debt liability. If the guarantor has paid for the paper, then the rights arising from the document pass to him.
A surety can only be a financial institution. That is, an individual and even a legal entity, no matter how solvency it may have, can not give bill guarantees.
What gives a guarantee
There are a number of reasons that do not contribute to the development of bill circulation in our country. Here is some of them:
- distrust of persons (individuals or legal entities) who issued a bill;
- the possibility of fraud;
- the absence in our country of a system for fixing and recording bills;
- the rules and rules for quick collection of the bill amount from the main payer who refused to pay (or its insolvency), etc. are not spelled out.
Our legislation puts the bill among other securities at the lowest position, and this contributes to the fact that in case of bankruptcy of the drawer, the case for damages will be the last in line.
Litigation on such financial claims lasts a very long time, and no one gives a guarantee of a positive outcome. Therefore, creditors also try to secure themselves additionally by issuing an aval. Regardless of the purpose for which the bill is avalized, the avalist becomes a participant in the bill circulation. Moreover, on equal terms with other signatories to the document.
What is the risk of the recipient
Oddly enough, but bill guarantees do not give a one hundred percent guarantee of a refund. Therefore, when preparing a document, a number of certain rules must be observed. They will minimize possible troubles. It is unlikely that they will be able to get rid of everyone, which is probably why the bill is considered a high-risk security.
First of all, you need the consultation of a highly qualified lawyer who knows all the nuances of bill legislation. He begins his work by checking the registration of a security and a guarantee on it. Any typo, typo, or inaccuracy of data may be the reason why the drawer refuses to pay with the wording “form defect”.
Secondly, the lawyer checks the guarantor. Moreover, solvency is not the main thing. You need to pay attention to the charter of the organization (company). Sometimes the statute establishes a provision on the prohibition of transactions related to bill guarantees. And if, nevertheless, an official of such an organization (company) signed a bill, then responsibility for the aval falls on him. True, abuse of authority will be punishable. There are cases when only the head of the company can give an aval, and even his first deputy does not have such a right. Naturally, the guarantee given by such a person also entails serious difficulties.
It should be noted that the avalist always takes risks by signing a bill. After all, the company (or individual) that issued the bill and refused to pay on it, transfers all responsibility to the guarantor. Russian legislation in this regard is always adamant. Even if it is proved that the drawer initially had a malicious intention, and he intended to mislead the guarantor with his actions, even this would not relieve him of responsibility. That is, you still have to pay the debt.
Buying Bills
This procedure is considered one of the most reliable and in demand among similar financial instruments on the securities market. Buying a bill is not only a profitable means of payment, but also an opportunity for a successful investment.
Income can bring the so-called bill interest. They are charged on the debt amount indicated on the bill. Interest-bearing bills are issued only “upon presentation”, “upon presentation, but not earlier than the known date”, and also “at a certain time from presentation”. The calculation is made for the entire period (number of days) of the security being held by the bill holder. The start date of the period is the date the bill was drawn up or the number specified in the text of the document. Moreover, the Civil Code clarifies that the countdown begins on the next day from the described dates. And the Bank of Russia gives such an explanation: the day of the actual placement of the bill is not included in the accounting period for bill interest.
Interest period end date - maturity date (inclusive). Naturally, the period for which interest is accrued cannot exceed the period allowed for the presentation of a security for payment.
For someone who pays interest on a bill of exchange, a specific procedure has been introduced for finding the number of days of circulation of a security per month. They are calculated as follows:
- if interest is accrued in the first month - from the day it begins to the last day in this month;
- if interest to maturity is calculated in the month of presentation - from the first day of the current month to the day specified for presentation;
- if in any other month - the number of calendar days.