The bill of exchange, after its creation and its possible circulation, comes to its natural end: payment. This is the stage at which the beneficiary, or final bearer, receives the promised sum of money. But how does this payment actually take place? What are the rules on due date and presentation? And above all, what should be done immediately if the payment is not made as expected?
Payment of a bill of exchange is governed by precise rules set out in the French Commercial Code, designed to reconcile the interests of the creditor (getting what is due) and the debtor (paying under the right conditions), while maintaining the necessary security for this instrument. This article guides you through the practical aspects of payment, from determining the due date to the first steps to be taken in the event of an incident.
The due date: the key moment for payment
The due date is the date on which the bill becomes payable. It must be indicated on the bill of exchange and is of vital importance to all parties. For a full understanding of the payment security, in particular through provisioning and acceptanceIt is essential to master these mechanisms.
Importance and types of deadline
The due date is the day on which the bearer must present the bill to be paid and the drawee must settle its debt. It also serves as the starting point for a number of important deadlines, in particular those relating to recourse in the event of non-payment and the limitation of actions.
Let us briefly recall the four possible types of maturity set out in Article L. 511-22 of the French Commercial Code:
- On a fixed day A specific calendar date is indicated.
- By a certain date Payable after a period calculated from the date of creation.
- At a certain point in time Payable after a period calculated from the date of presentation for acceptance (or protest in the absence of acceptance).
- On sight Payable on presentation to the drawee.
Calculating and meeting deadlines
The precise determination of the due date follows specific rules, particularly for periods expressed in months or days (detailed in article L. 511-24 of the French Commercial Code). Account must also be taken of public holidays. If the due date falls on a public holiday, payment may only be demanded on the next working day (article L. 511-79). Public holidays occurring during the calculation of a deadline are counted, but if the last day of the deadline is a public holiday, it is postponed to the next working day. Specific rules also exist for payments in countries using different calendars (article L. 511-25).
It is possible to extend the term by mutual agreementThis can be done either by creating a new draft (renewal) or by changing the date on the existing draft. However, such a change requires the agreement of the parties concerned (in particular the accepting drawee and the guarantors) if it is to be enforceable against them and not result in the loss of the guarantees. Legal extensions may also be granted in cases of force majeure or exceptional moratoria decreed by the authorities (article L. 511-50).
There is a fundamental principle governing the maturity of a bill of exchange: a ban on grace periods. Except in the very exceptional cases provided for by law (early recourse), the debtor of a bill of exchange may not obtain judicial or legal deferment of payment. He must pay on the due date (article L. 511-81).
Presentation for payment: an obligation for the bearer
Unlike an ordinary debt, the holder of a bill of exchange is obliged to actively present it for payment in order to retain all his rights.
When to present the milking?
The timing of the presentation depends on the deadline:
- For a draft on a fixed day, by a certain date or by sightUnder article L. 511-26, presentation must be made either on the due date or on one of the following two working days. A 1940 law, which is technically still in force although dated, mentions a period of ten working days, but prudence dictates that the two-day period should be respected.
- For a draft on sightIn the case of a banknote, presentation must take place within one year of the date on which it was created (unless the drawer has set a different, shorter or longer deadline - article L. 511-23).
It is forbidden to demand payment before maturityA payment made by the drawee before the due date is made "at its own risk". A payment made by the drawee before the due date is made "at its own risk" and may not be discharged if it pays a person who was not the true rightful bearer (article L. 511-28).
Who's presenting and where?
Only the legitimate holder (the person who proves his right by an uninterrupted series of endorsements, or his authorised representative with power of attorney, or a pledgee) may validly present the bill for payment. The debtor must verify this apparent legitimacy (article L. 511-11). Presentation is made to the place indicated for payment on the draft, which is either the drawee's domicile or the domicile of a designated third party (the domiciliary, often a bank).
Presentation to a clearing house or via interbank e-clearing systems (for Lettres de Change Relevé - LCR, for example) is equivalent to presentation for payment (article L. 511-26, para. 2).
Consequences of non-presentation
A holder who fails to present the bill of exchange for payment within the required time period is considered to be careless. This negligence leads to forfeiture of its recourse against the endorsers and against the drawer who may have provided a deposit (article L. 511-49). However, he retains his rights of action against the accepting drawee and against the drawer who has not made provision.
To protect himself against this negligence, the debtor who finds that the bill of exchange has not been presented may deposit the sum due to the Caisse des dépôts et consignations at the expense and risk of the bearer (article L. 511-30). This deposit releases the holder from its debt.
Making the payment: who pays? who receives? how?
The big day has arrived and the bill of exchange has been presented. How is the payment made?
The parties and their obligations
Le legitimate holder demands payment. The person who must pay is first and foremost the drawnwhether or not it has accepted. In the event of default, the bearer will turn to the other signatories (drawer, endorsers, guarantors).
For the payment to be in full discharge of its liabilities, the payer (often the drawee) must comply with certain obligations:
- Check the apparent regularity of the chain of endorsements to ensure that it is paying the rightful bearer (article L. 511-11). He is not required to check the authenticity of the endorsers' signatures.
- Do not neither fraud nor gross negligence (article L. 511-28). Knowingly paying a thief or despite a legal objection (see article 4) would constitute a fault giving rise to liability.
For its part, the holder must remit the acquitted draft to the debtor who pays (article L. 511-27). This is the essential consideration for payment.
Terms of payment
There are several ways to do this:
- Payment in cash : This is the classic method. If the bill is denominated in a foreign currency, payment may be made in that currency or in the currency of the place of payment, at the exchange rate on the due date (unless the drawer has demanded actual payment in the foreign currency - article L. 511-29).
- Payment by cheque or bank transfer: The bearer may agree to be paid by bank cheque, postal cheque or money order (article L. 511-40). If this means of payment is returned unpaid (bounced cheque, rejected transfer), the bearer must complete specific formalities (protest of the cheque, notification of the rejection) in order to retain the rights attached to the initial bill of exchange. The debtor must then either pay the draft and the costs, or return the draft initially issued.
- Partial payment : Contrary to ordinary law, the bearer of a bill of exchange cannot refuse a partial payment offered (article L. 511-27, paragraph 2). He must accept it. The debtor may demand that this partial payment be mentioned on the draft and that a receipt be issued. The bearer retains his rights of recourse for the outstanding balance and must have a protest drawn up for this amount.
Concerning allocation of paymentsIf the debtor owes several debts to the bearer, the rules of the Civil Code (article 1342-10) apply: the debtor may indicate which debt he intends to pay, otherwise the creditor may make the charge on the receipt, and failing that, the charge is made against the debts that have fallen due, then against those that the debtor had the greatest interest in paying.
Proof and effects of payment
Once payment has been made, how do you prove it and what are the consequences?
Proving payment
The main proof is the delivery of the paid bill of exchange by the bearer to the debtor who has paid. The fact that the debtor holds the unpaid security gives rise to an obligation to pay. simple presumption of payment in its favour (article 1342-9 of the Civil Code), but the bearer can prove that the delivery was not voluntary or made for another reason.
Effects of payment
Payment validly made extinguishes the exchange obligation of the debtor who has paid. If this payment is made by the drawee who had received provision, he also releases all other signatories (drawer, endorsers, endorsers). The bill of exchange no longer has any legal value.
If the payment is made by a guarantor (drawer, endorser, guarantor), it releases only that guarantor and the signatories that he himself guaranteed (those who follow him in the chain). The guarantor who has paid is then subrogated in the rights of the holder and may exercise recourse against its own guarantors (previous signatories).
Beware of multiple copies. Payment for one copy discharges the printer, unless the printer has accepted several copies. In this case, he remains liable for each accepted copy that he has not collected (article L. 511-73).
Intervention payment: an alternative in the event of default
If the drawee fails to pay on the due date, a third party (or a person who is already a signatory other than the acceptor) may offer to pay "by intervention" for the honour of a debtor exposed to recourse (article L. 511-67). This payment, which must cover the entire sum due, must be recorded by an acknowledgement on the draft indicating for whom it is made. The intervening party who pays is then subrogated to the rights of the bearer against the debtor for whom he has paid and against the latter's guarantors (article L. 511-71).
What to do if you default? The Protest
If, despite presentation, the drawee fails to pay (in full or in part), the bearer must act quickly to preserve its rights against the guarantors. The first step, unless waived, is to have the non-payment officially recorded. To find out more about managing unpaid bills and other unforeseen events related to bills of exchange, see our dedicated article.
Protests in default of payment: definition and role
A protest for non-payment is a authenticated deed drawn up by a bailiff or notary, which records the presentation of the bill of exchange and the refusal (or impossibility) of payment by the drawee or direct debit. This is a formality indispensable so that the bearer can exercise his rights of recourse against the drawer and endorsers (with certain exceptions).
The obligation to draw up a protest
The bearer must have this protest drawn up within two working days of the day on which the draft is payable (article L. 511-39). This time limit is crucial. The protest must be drawn up at the place of payment indicated on the draft.
Waivers of protest
The bearer is exempt from having a protest drawn up in certain cases:
- Free returns" clause or equivalent on the bill of exchange. However, this does not exempt you from presenting the bill of exchange for payment on time!
- If a protest for lack of acceptance has already been drawn up.
- In the event of collective procedure (safeguard, recovery, judicial liquidation) opened against the drawee (acceptor or not), the production of the judgement is sufficient.
- In the event of force majeure preventing presentation or protest (with specific rules depending on the duration of the impediment - article L. 511-50).
Content, notices and advertising
The protest must contain specific information (transcription of the draft, summons to pay, debtor's response, etc.). - article L. 511-53). The ministerial officer who draws up the protest must in particular notify the shooter (if his address is known) within 48 hours (article L. 511-42). The bearer must also notify his own endorser, who will notify his endorser, and so on. Failure to notify does not entail forfeiture of rights of recourse, but may render the person who failed to notify liable.
Finally, protests for non-payment of bills of exchange accepted are subject to advertising via an entry in a register held at the commercial court registry (articles L. 511-55 et seq.) and are centralised by the Banque de France, which may affect the credit of the defaulting debtor.
Alternatives to traditional payment: other extinction methods
The obligation arising from the bill of exchange can also be extinguished by the classic mechanisms of civil law: dation en paiement (giving something other than money), novation (replacing the obligation by a new one, for example by renewing the bill), remission of debt, compensation (if bearer and debtor are reciprocally creditors and debtors), confusion (if the bearer becomes the principal debtor).
One method specific to banking law is the reversal Discounting: when a bank has discounted a bill that is returned unpaid, it may debit the account of its remitting customer. This transaction constitutes payment and extinguishes the bank's recourse against the remitter (unless the account is closed or the remitter is in receivership, in which case the rules are different).
Paying a bill of exchange or dealing with unpaid bills raises specific legal issues. Respecting deadlines and formalities is essential to safeguard your rights. If you are experiencing difficulties with payment or collection, our firm can help you with the following procedures in commercial law.
Sources
- French Commercial Code, in particular articles L. 511-11, L. 511-13, L. 511-22 to L. 511-43, L. 511-49, L. 511-50, L. 511-52 to L. 511-59, L. 511-67 to L. 511-71, L. 511-73, L. 511-79 to L. 511-81.
- Civil Code, in particular articles 1342-4, 1342-9, 1342-10, 1345 et seq.
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