Your bill of exchange has been dishonoured

You presented a bill of exchange (lettre de change) or promissory note (billet a ordre) for discounting. The bank credited your account. Then the bill was dishonoured at maturity, and the bank reversed the transaction: the amount was debited back to your current account, sometimes without notice.

This situation, common for businesses that use bank discounting (escompte) as a short-term financing tool, can trigger a chain of cash flow disruptions. The account balance turns negative, other transactions are rejected, and the banking relationship deteriorates.

Bank discounting under French law

Discounting (escompte) is a “credit transaction by which the bank makes available to the business, in exchange for an unmatured bill of exchange, the face value of the bill less interest and commissions”. The bank that discounts a bill becomes its owner. In the event of non-payment, it has recourse against the presenter, notably by way of charge-back to the current account (Cass. com., 11 March 1970, No. 68-10.808).

Our firm handles

  • Analysing the regularity of the charge-back effected by the bank
  • Challenging an abusive or late charge-back
  • Defending against cambialist recourse exercised by the discounting bank
  • Assessing liability where the discounting facility has been abruptly terminated (Article L. 313-12, French Monetary and Financial Code: 60 days’ mandatory notice)
  • Negotiating payment schedules or moratoriums with the bank
  • Representation before the Commercial Court or Tribunal judiciaire

French banking law distinguishes between a “conditional credit” charge-back (sauf bonne fin) – where the bank reserves its right to debit the account if the bill is not paid – and outright discounting, where the bank assumes the risk of non-payment. The clause in your discounting agreement determines the extent of your obligations.

Depending on your case, you may also wish to consult our pages on factoring, bank liability and our banking & finance overview.

The bank exercises its recourse

The bank that has discounted a dishonoured bill of exchange has a dual recourse. First, cambialist recourse based on French negotiable instruments law (Articles L. 511-38 et seq., French Commercial Code): it may proceed against the drawer, endorsers and their guarantors. Second, a contractual recourse based on the discounting agreement itself.

These recourses are not unlimited. A holder who has failed to arrange a protest within the statutory time limits loses its rights against the endorsers and the drawer (Article L. 511-49, French Commercial Code). The nature of the discounted instrument – accepted bill of exchange, promissory note or cheque – determines the available courses of action.

Our areas of intervention

  • Exercising cambialist recourse against the signatories of a dishonoured bill
  • Invoking the non-opposability of defences in favour of the bona fide holder
  • Establishing the discounting bank’s liability for imprudence in accepting accommodation bills or circular trading (cavalerie)
  • Defending the presenter against cambialist recourse: challenging the bank’s good faith, personal defences, formal defects in the bill
  • Coordinating with insolvency proceedings where the drawee has entered judicial reorganisation or liquidation

The Cour de cassation has held that the bank is entitled to exercise recourse against its customer by way of charge-back, without first having to pursue the drawer of the cheque or bill (Cass. com., 13 November 2012, No. 02-10.220). This case law weighs heavily on the presenter’s defence strategy.

Securing your discounting operations

The discounting agreement (convention d’escompte) is the contract that governs the relationship between the business and its bank for receivable mobilisation operations. Its content determines each party’s rights and obligations in the event of non-payment.

We audit discounting agreements to identify high-risk clauses: scope of the “conditional credit” provision (sauf bonne fin), charge-back conditions, termination procedures, calculation of fees and commissions. A poorly drafted agreement exposes the business to recourse it had not anticipated.

What we verify

  • The legal characterisation of the operation: genuine discounting or mere collection mandate – the distinction is decisive in the event of the presenter’s insolvency
  • Compliance of fees and commissions with usury rules and the global effective rate
  • Termination conditions: the bank must give 60 days’ notice before withdrawing an open-ended credit facility
  • The validity of the bills of exchange presented: mandatory particulars, consideration, acceptance
  • Coordination with other security interests and guarantees (suretyship, pledge, Dailly assignment)

Our firm acts upstream – drafting, auditing and negotiating agreements – as well as downstream, once litigation has commenced. In banking and financial law, preventing a dispute always costs less than resolving one.

Frequently asked questions

What remedies are available against an abusive charge-back?

If your bank has reversed a discounted bill irregularly, you can challenge the transaction. The discounting agreement, the notification procedures and the legal basis invoked by the bank must all be examined. A banking law lawyer can pursue the bank’s liability.

Can the bank terminate my discounting facility without notice?

No. Article L. 313-12 of the French Monetary and Financial Code requires at least 60 days’ notice for any termination of an open-ended credit facility. A sudden termination engages the bank’s liability and can result in damages for the loss suffered.

What should I do if a discounted bill has been dishonoured?

The bank has both cambialist and contractual recourse. If you are the presenter, verify that the bank observed the protest deadlines and that the charge-back is regular. If you are the drawee or an endorser, defences may be available depending on the circumstances of the transaction.

Do you handle urgent discounting cases?

Yes. When a charge-back triggers a cash flow crisis, we can act promptly to negotiate with the bank or apply to the judge for urgent interim relief (refere) if necessary.

What is the difference between discounting and factoring?

Discounting relies on the presentation of a bill of exchange: the bank becomes the owner of the instrument. Factoring relies on the global assignment of trade receivables to a factor, which manages collection. Both are receivable mobilisation techniques, but their legal regimes and associated risks differ.