Commercial paper remains an essential legal instrument in commercial transactions. These negotiable instruments facilitate payment terms while enabling creditors to enforce their claims. Despite the development of electronic means of payment, they retain specific advantages that businesses need to be aware of.
Common features of commercial paper
Commercial paper has four fundamental characteristics. They are negotiable instruments, transferable by endorsement or tradition. They carry a precise indication of their value. They represent a sum of money incorporated into the instrument itself. Finally, they represent a short-term debt.
This specific legal nature gives them enhanced protection. The legitimate bearer of a bill of exchange benefits in particular from the principle that defences cannot be invoked. This crucial principle prevents the debtor from invoking against a bearer acting in good faith any defences arising from his personal relationship with the drawer or previous bearers.
These characteristics are accompanied by strict formal requirements. The absence of a single compulsory wording leads to the disqualification of the title. This formal rigour, sometimes perceived as a constraint, is in fact a protection for all parties concerned.
Overview of the main commercial paper
Bills of exchange
The bill of exchange, or draft, is the commercial instrument par excellence. It brings together three people: the drawer, who issues the instrument, the drawee, who must pay, and the beneficiary, who receives the payment. Its detailed legal status is set out in articles L. 511-1 to L. 511-81 of the French Commercial Code.
La bill of exchange is distinguished by its credit and payment function. It allows the seller to grant a period of grace to the buyer while retaining the possibility of mobilising the receivable by means of a bank discount.
Promissory notes
Le promissory note offers a simpler mechanism. It commits only two people: the subscriber, who promises to pay, and the beneficiary. This streamlined structure makes it an ideal instrument for certain transactions, such as business sales or bank loans.
Other effects
Other instruments complete this category. Bearer notes are transferred by hand. Warrants combine a commercial paper with a pledge on goods. These variants meet specific needs, but their use remains marginal compared with the two main instruments.
Fundamental legal principles
The law on bills of exchange is based on three essential principles that structure the entire legal regime governing bills of exchange.
Formalities of the chamber of commerce
Bills of exchange are subject to strict formalities. Article L. 511-1 of the French Commercial Code lists eight mandatory details for bills of exchange. Article L. 512-1 sets out similar requirements for promissory notes. This formalism is the necessary counterpart to the protections afforded to the bearer.
The independence of signatures
This fundamental principle means that each signatory of a commercial paper is bound by his or her own signature, regardless of the validity of the other signatures. A forged signature or that of an incompetent person does not affect the commitment of the other signatories. This rule strengthens the legal certainty attached to these instruments.
The solidarity of Cambiers
All signatories to a commercial paper are jointly and severally liable to the bearer. This joint and several liability, set out in article L. 511-44 of the French Commercial Code, enables the creditor to take action against all the debtors without observing the order in which they are bound. This enhanced guarantee is a major advantage over ordinary claims.
Practical issues for businesses
Payment security
Commercial paper offers companies greater legal certainty. Formalising the debt in a negotiable instrument makes it easier to collect. The interdependence between the provision and the instrument protects the bearer in the event of the drawer's insolvency.
Mobilisation of receivables
The negotiability of commercial paper means that receivables can be mobilised quickly. The company can discount these securities with a bank and obtain immediate financing. This mechanism significantly improves the cash flow of suppliers granting payment terms.
Proof of claim
These instruments constitute pre-constituted proof of the claim. Their physical existence makes it easier to demonstrate the creditor's rights and simplifies any legal proceedings.
Points of attention and major risks
Risk of deskilling
Failure to comply with the mandatory information will result in the document being disqualified. The document retains its evidential value, but the creditor loses the specific protections of the law of exchange. Particular care must therefore be taken when drafting bills of exchange.
Effects of convenience
The effects of convenience are a major danger. These fictitious securities, created without any real economic consideration, expose their signatories to severe civil and criminal penalties. They generally reflect an already compromised financial situation.
International dimension
International trade effects raise complex issues of conflicts of laws. The Geneva Conventions have attempted to harmonise the applicable rules, but differences persist. Prior analysis of the legislation concerned is essential for cross-border transactions.
Dematerialisation and recent developments
La dematerialisation of commercial paper is making progress. The LCR (lettre de change-relevé) allows for computerised processing. The Attractiveness Act of 13 June 2024 took a decisive step forward by creating the electronic transferable security.
This development meets companies' need for efficiency. It preserves the essential characteristics of commercial paper while simplifying its processing. However, the digital transition requires technical and legal adaptations.
Commercial paper is a sophisticated legal instrument that requires specific expertise to master. Given the complexity of their legal regime and the financial stakes involved, support from a lawyer in commercial paper law is often decisive. Our firm can advise you on securing your transactions and resolving any disputes that may arise.
Frequently asked questions
What is the difference between a bill of exchange and a promissory note?
The bill of exchange brings together three people (drawer, drawee and payee) and constitutes an order to pay, whereas the promissory note only commits two people (subscriber and payee) and represents a direct promise to pay.
Can a commercial paper be contested after it has been issued?
Yes, a commercial paper can be challenged on the grounds of formal defects, lack of provision, lack of consent or fictitious nature, but these defences are generally unenforceable against a holder acting in good faith by virtue of the principle that defences are unenforceable.
What are the risks of signing a bill of convenience?
Signing a bill of convenience exposes the signatory to civil penalties (nullity of the commitment, liability) and criminal penalties (fraud, personal bankruptcy, bankruptcy), as the compliant signatory may be required to pay the bearer in good faith without effective recourse against the accomplice.
Can bills of exchange be dematerialised?
Yes, the Attractiveness Act of 13 June 2024 created the electronic transferable document, enabling the complete dematerialisation of commercial paper, provided that a reliable method is used that guarantees the uniqueness of the document and the exclusive control of the bearer.
How long are bills of exchange valid for?
A commercial paper does not have a predefined period of validity, but recourse against it is subject to strict limitation periods: three years for actions against the acceptor and one year for recourse actions against the other signatories.
Which law applies to an international instrument?
Several laws may apply simultaneously: the form is governed by the law of the place of signature, the effects of the acceptor's obligation by the law of the place of payment, and the effects of the obligations of the other signatories by the law of the place where they signed.
How can you protect your business against unpaid bills of exchange?
To protect itself against non-payment, a company must check the solvency of its commercial partners, demand that bills of exchange be accepted, obtain additional guarantees (endorsement, credit insurance) and scrupulously observe the presentation and protest periods.
Can banks refuse to discount a commercial paper?
Yes, banks have the contractual freedom to refuse to discount a bill, particularly if they have doubts about the creditworthiness of the signatories or the formal legality of the instrument.
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