A bill of exchange is a type of security intended to determine the financial relationship between business entities. The bill was introduced into circulation in ancient times. As a universal settlement tool, it is still actively used in the circulation of financial assets.
A promissory note: the essence of the paper, sample filling, maturity
The circulation of bills was officially fixed in law in 1930 as part of the Geneva Convention. The USSR adopted this practice in 1936. A year later, there was its own regulation on the use of bills. In the same official event, the types of bills were identified: a promissory note and a bill of exchange.
According to the main essence of all descriptions, a bill of exchange is a special type of securities representing debt obligations of a bill holder. If we consider according to types, then a bill of exchange performs a slightly different function. It is intended to transfer debt to a third party. A promissory note, in turn, assumes that its owner is authorized to repay the debt only to the holder of his bills.
Both types of documents are subject to special requirements, one of which is the ability to sell documents only in paper form. The requirements for them are also fixed at the official level. So, the list of required details for bills was established by Decree No. 104/1341 in 1937 and is still relevant.
Content
The content of the two types of bills is slightly different from each other. The sample of filling a promissory note must obey the following structure:
- Name of security. The definition is written in the language in which the entire document is compiled.
- The wording of who and how much to pay. Moreover, the conditions for the occurrence of debt obligations are not indicated.
- Date of payment.
- Where should the payment go.
- Initials of the owner.
- Date and place of compilation of the document.
- Signature of the holder of the bill.
The content of the type of bills of exchange
The translated type follows the following structure:
- Document's name. Belonging to the type is not indicated.
- Free wording on the purpose of the document: to whom and how much you need to pay for it.
- Payer Initials.
- Determination of the date of payment.
- Where should the payment go?
- To whom should the funds be addressed.
- Date and place of compilation of the document.
- Signature of holder.
This is the difference between bills and promissory notes. What this document looks like will be discussed later. Given the financial and legal importance of this type of securities, the procedure for their circulation is regulated at the federal legislative level. Next, each item will be considered in terms of laws.
Amount and its features
What amounts can be transferred by bill of exchange? Are there any restrictions or recommendations? The form of a promissory note or any other form must contain the amount in numbers and words. If these two indicators have differences, then the amount indicated in words is considered correct. If several different amounts of debts are allowed, then the one that is smaller than all the others is considered correct.
The maturity of a promissory note is subject to a reservation: it must be indicated or not indicated. If not specified, it is subject to immediate repayment. In this case, partial repayment is not allowed: the entire amount indicated must be paid at one time.
The principle of debt formation is up to the parties to choose and agree. They may agree to pay interest or other premiums on the loan. If there are such conditions, they can be written in the form of a promissory note or indicate a separate application. The right to receive interest is valid if the document indicates the deadline for making a payment or the deadline for presentation. If these conditions are not met, then it is considered that interest rates on debt are not indicated on the bill. If the amount is indicated appropriately, then, according to the general rules, the holder must pay this amount without reference to any other conditions.
Terms of payment
Legislation provides the right to choose for each stage of circulation of bills. Payment of a promissory note or any other type of securities from this series is no exception. Four types of terms for settlements are provided for the choice of holder:
- “On a specific day” - due on a specified date.
- “Specific period from the moment of preparation” - the countdown for repayment should start from the date of preparation, which is indicated in the document itself.
- “Specific time period from the moment of presentation” - the time should be counted from the day it was received. The date of presentation is recorded in the document itself.
- "Upon presentation." Despite the categorical name, the legislation allows reservations: according to the law, it must be presented within 1 year from the date of putting into circulation.
If the payment term is not indicated in the document, then you should focus on the release date. The provision on a promissory note and a bill of exchange states that such documents must be redeemed within one year from the date of issue. If neither the issue date nor the maturity date is indicated, then the document will lose its financial and legal force.
Where and how to make a payment? The term for a promissory note and other payment parameters are indicated in the document itself. If not, then by default the place of payment is the location of the payer. If several different places for payment are indicated or none are indicated, this fact also serves as the basis for the loss of the financial and legal force of the document.
What is aval bills?
A payment obligation is entitled to demand a guarantee. In bill circulation, this aspect is called aval. A financial institution represented by a bank or another person guaranteeing payment can be an avalanche. However, it is not necessary that the avalist be directly related to the obligations of the document. An instrument of promissory note or other types may formulate this aspect as a bill guarantee
The appendix to the bill agreement, where the procedure for the avalist should be described, is called allonge. The position of the avalist is also allowed to be indicated by a direct inscription in the bill of exchange form itself. If an allonge is executed, then the following information should be indicated in it:
- For whom a guarantee of payment is issued.
- Place and date of document formation.
- Signatures of participants: these are usually the first persons of a financial institution and their seal.
Upon the signing of this document, payment responsibility is divided equally between the avalist and the person for whom the guarantee is issued. The provision on a promissory note in the bill legislation stipulates that if the payment is paid off by the avalist individually, the bill rights and all its ensuing transfer to him unconditionally.
The practical benefit of avalination is that the procedure increases the reliability of such documents. It can be applied in cases where the creditor has doubts about the integrity of the debtor. In such cases, the lender has the right to demand additional guarantees in the person of those organizations that he himself trusts. Avaluation is applicable to common and transferable types of bills. It may concern all or part of the payment.
Appearance of the document
The fact that the bill is, in simple words, the transferred obligation, have already been sorted out. In the same regulation, where the bill was officially recognized as a financial instrument, clear requirements are given for other parameters. So, its main difference from other securities is an indication that it is a bill of exchange. Information on the sender and who receives is also mandatory. The difference in the preparation of the two types of documents is that the person who is obliged to pay off the debt is indicated in the bill of exchange.
Be sure to consider: if the person paying the debt is not indicated, the document loses its status.
A promissory note in its functionality contains several reservations. They are as follows:
- If the addressee for debt is not indicated in the document, then by default this address is the address of the debtor.
- If you forgot to indicate the place of formation of the document, then it is considered that it was drawn up at the place of residence of the holder of the bill.
- If a specific debt repayment date is indicated, then you should obey it. If not, you should pay off the debt upon receipt of the bill in the hands of the recipient.
What paper should a promissory note sample use? Previously used forms issued by the USSR State Emblem. They contained special watermarks and other methods of protection against counterfeiting. Such a form was in use until the 1990s. The forms were strictly controlled, and their appearance was easily recognizable. Currently, the Promissory Note Act permits the use of plain paper.
Kinds
Since the official recognition of bills in circulation, other types have also appeared. Classification is carried out according to different parameters. Consider them in detail:
- Commodity. This type is used for mutual settlements in goods turnover. He acts as a guarantor of payment for the sale of goods bypassing a bank guarantee.
- Order. It has other names: registered or blank. It differs in that only a specific person indicated in the document itself has the right to receive funds on debt.
- Advance is a promissory note used as an advance payment for work to be performed. The holder issues it upon receipt of funds.
- The Treasury type of bills is issued by the Central Bank on the basis of a request from the Government. Validity of such bills usually does not exceed six months.
- Bank bills are entitled to receive persons providing loans to the bank.
Atypical types of bills
Any financial instrument may be used for dishonest purposes. Bills of exchange are no exception. But in this case there is a certain paradox. The bill legislation mentions such types of bills as bronze or friendly. They differ in that the recipient of the debt on the bill is a fictitious person. The scheme is simple: the two parties, by prior arrangement, issue bills and submit these documents to financial institutions of various purposes.
Both types of bills do not have a real financial relationship. Despite this, it will be very difficult to prove in court that this method is fraudulent, since bill legislation allows this use case. Such types of bills in many countries are prohibited for circulation.
A more practical option is promissory notes for friends and relatives, which are often used in the West. This document has full legal force and can be used to transfer debt to your loved ones. Filling a promissory note in this case is carried out in an arbitrary manner and does not require notarization.
Where are they used?
In the CIS countries and Russia in particular, the largest share of bill circulation falls on banks and other financial institutions. According to the Central Bank of the Russian Federation, in 2017, the total amount for the issue of promissory notes is about 450 billion rubles. However, this type of activity, like all activities of the banking sector, is under the scrutiny of the Central Bank of the Russian Federation. When in 2014 the Central Bank switched to a more stringent mode of operation in the field of verifying the activities of banks, it was possible to find out that some of these institutions used friendly and bronze bills in practice. These establishments lost their licenses.
Bills, as financial instruments, have their own economic purposes. They can be used in favor of representatives of small and medium-sized businesses. Given the fact that repayment of a promissory note means real money, we can say that the document acts as a guarantor for long-term cooperation between companies and individuals. Unlike typical legal contracts or debt receipts, a bill can be used as a full-fledged financial instrument with the right to transfer to other persons.
Difference to other securities
If a bill is in simple words a transfer of debt instruments, then what is the difference between a receipt or legal contracts? This difference is its versatility. In fact, in the framework of the sale of the bill, the debtor recognizes its obligations without reference to other conditions. From this point of view, the document is a convenient tool both for individuals and in the practice of legal entities or government bodies.
The main purpose of the bill is the ability to transfer it to others, the so-called endorsement. The fact of transfer is recorded by the definition of “Endorsement” and is indicated on the back of the form.
The holder, transferring the document to another person, must put the label “Pay by order” with reference to the new holder and put his signature.
There may be several promissory notes for one debt obligation. In this case, the repayment obligation applies to all holders. If one of the owners does not have financial ability, then he can transfer the repayment of a promissory note to another holder. If the holder does not want to receive such offers, then during the transfer he can make a note “without turning to me”. In this case, other holders cannot transfer their obligations to him.
Legal framework in the Russian Federation
Provisions in Russian law are based on concepts of international law. At the same time, the Russian Federation is the assignee of the Soviet Union. This is evidenced by some legal regulations and provisions dating back to the time of the great power.
The basis of bill legislation in the Russian Federation consists of provisions from 1930 under the numbers 358-360 adopted at a convention in Switzerland: a resolution of the Central Executive Committee and Council of People's Commissars of the USSR of 1937 under number 104/1341 and the Federal Law of the Russian Federation "On a bill of exchange and promissory note", adopted in 1997 year.
In addition to these laws, other regulations on the regulation of bill relations are also applied. They are considered all laws that do not contradict the principles of the main listed documents. In particular, these are the Civil and Civil Procedure Codes, Federal Laws, Decrees and Decisions of the President and the Government of the Russian Federation, regulatory provisions of the Central Bank and the Ministry of Finance, devoted to the procedure for the circulation of securities in the Russian Federation.
Controversial issues in this industry are considered under the guidance of the provisions of the letter of the Presidium of the Supreme Arbitration Court of the Russian Federation "Overview of the practice of resolving disputes related to the use of promissory notes."
The main normative act - “On a bill of exchange and a promissory note” since 1997 consists of 8 articles that are in agreement with international provisions in this industry.
According to these standards, receivers of bill obligations can be legal entities and individuals of the Russian Federation. State and municipal bodies, as well as their territorial divisions, can only bear promissory note obligations in the cases described in Article 2 of the Federal Law “On Transferable and Promissory Notes”. In other words, obligations on securities issued in other states cannot be regulated by Russian laws, regardless of the type of bill of exchange.
It is also important to pay attention to the paragraph governing the payment of interest and interest on bills. Article 3 of the main Federal Law states that interest and penalties are paid on the basis of the discount rate of the Central Bank of the Russian Federation. A direct reference to this procedure is Article 395 of the Civil Code of the Russian Federation, which clearly states that interest should be accrued for using the funds of other persons, and in case of delays, interest will be added to them. The interest rate is tied to the location of the subjects of the transaction and should be determined in conjunction with the current rates of the Central Bank of the Russian Federation.
If we are talking about the judicial procedure for collecting debt obligations, then the judicial authorities should also be guided by the discount rates of the RF Federal Bank. If the lender incurs losses that exceed the amount of the payment of the obligations, then he is entitled to demand compensation for losses incurred in addition to repayment of the main debt.
Bill of Exchange Acceptance
The essence of a promissory note states that the document carries with it an obligation to pay a certain amount. A person who undertakes such an obligation takes such a step voluntarily and with an awareness of responsibility. A person’s consent to such conditions is called acceptance. It applies to bills of exchange.
It is important to remember that the payer must make the amount in favor of the drawer, and in this case the bill of exchange is written out not by the debtor himself, but by the person who issues the funds for use - by the creditor. The document is sent to the recipient with his prior consent of the parties. If this does not happen, then one of the parties has the right not to accept obligations.
Acceptance, as well as aval, may concern partial payment of payment. It is marked on the front side of the form to the left of the aval.
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Also, the bill payment method is applicable for the repayment of own debt by an individual. A document even plays an investment role when it is necessary to keep it before the indicated deadline for presentation. Or you can sell it before the due date and get paid for it.
If the bill does not contain one of the above important information, then it loses its financial and legal force. Therefore, be careful when filling out.