Negotiable Instruments, in Particular Bills of Exchange in Macau, China
| Author | Jianhong Fan;Yang Tao |
| Pages | 83-93 |
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Jianhong Fan 1;Yang Tao2
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The general framework of business law is provided by the Civil Code of Macau, approved by Decree-Law 39/99/M, of 3 August. Nevertheless, Macau has a special body of law for negotiable instruments: the Commercial Code of Macau, approved by Decree-Law 40/99/M, of 3 August, amended by Law 6/2000, of 27 April.3 Book IV of the Commercial Code provides the regulation of negotiable instruments. As stated in the preamble, this regulation contains "a general theory of negotiable instruments" and, moreover, "the Code incorporates the uniform laws on bills of exchange, promissory notes and cheques. This is a merely formal option, in order to avoid the dispersion of instruments essential to commercial activity." The source of this regulation is, on one hand, the Geneva Convention of 7 June 1930, providing for a Uniform Law for Bills of Exchange and Promissory Notes, and the Geneva Convention of 19 March 1931, providing for a Uniform Law for Cheques4. As stated in art. 4, 1 and 2 of Decree-Law 40/99/M, of August 3, these conventions on bills of exchange, promissory notes and cheques have been incorporated in the Commercial Code under articles 1134 to 1211 and articles 1212 to 1268, respectively.
It means basically that the previous regulation continues to apply as such, and this is made clear by art. 7, 2 of Decree-Law 40/99/M, of August 3, on amendments to Commercial Code, providing that any amendment to the provisions on bills of exchange, promissory notes or cheques will only have effects in Macau strictly within the limits allowed by the respective international agreements. Art. 1, 3 of the Civil Code provides that international conventions that are applicable in Macau prevail over ordinary legislation (on international conventions that are applicable in Macau see the Basic Law, in particular, arts. 136 and 138). In this respect, it should be noted that the Court of Final Appeal (Proc. 2/2004, 2/6/04) has decided that both article 5 of Decree-Law n. 40/99/M, of August 3, and article 569, 2 of the Commercial Code are contrary to art. 48, 2 of the Uniform Law on Bills of Exchange and Promissory Notes (which is considered to be in force since 1960 in spite of its incorporation in the Commercial Code), and therefore should not be applied by the courts.
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According to the definition of Vivante, a negotiable instrument is a "necessary instrument to exercise a literal and autonomous right embedded therein"5. The document is necessary not only to prove the existence and content of the right, but also to constitute it. That is the so-called principle of incorporation: the right is incorporated or embedded in the document. Then, the document performs a function of legitimacy, since the right can only be exercised by who has its regular possession (legitimate or good-faith possession - CCom, art. 1071). Moreover, negotiable instruments are featured by literality, meaning that the wording of the instrument provides the content, the limits and the modalities of the right (quod non est in cambio non est in mundo). Another feature is autonomy, meaning that the holdership of the possessor is established ex novo, regardless of previous holderships and their defects (CCom, art. 1072 concerning defenses opposable against the holder).
The interests that justify the law of negotiable instruments, making it different from credit assignments, are the protection of good-faith of third parties, and the promotion of the flow of these instruments. The principle is freedom of issue (CCom, art. 1064) and there are several types of negotiable instruments. First, concerning their content, there are: a) instruments of participation that grant a status, such as shares (and bonds) of public companies; b) instruments representing merchandises, such as transportation or carriage notes (e.g., bill of lading); c) credit instruments in strict terms that grant a right to a pecuniary provision, such as bill of exchange, promissory notes and cheques. Second, concerning their normal way of circulation, there are: a) nominative instruments, whose transmission must be noted in a book of registries, otherwise it does not produce effects; b) order or on demand, circulating by endorsement; c) to bearer, that are transmitted merely by deliver (CCom, art. 1065; see also CCom, arts. 1093 ff., 1101 ff. and 1126 ff.).
Bills of exchange have originated during the Middle Ages in Europe within the exchange contract of merchants. The so-called cambium per litteras was mainly a means of security of payments, making the use of money unnecessary. This instrument of safe payment is quite important in international business transactions. Concerning economic functions, bills of exchange perform functions of guarantee, means of payment and instrument of credit. One payment is enough to extinguish a series of pecuniary debits. It has the advantage of a discount, which takes place by endorsement of the bill to a bank that will pay it - discounting an interest that is due for the period from payment until maturity of the instrument.
As provided in art. 1134 of the Commercial Code, a bill of exchange must contain: a) the term 'bill of exchange' inserted in the text of the instrument and expressed in the language employed in drawing up the instrument; b) an unconditional order to pay an exact sum of money; c) the name of the person who is to pay (drawee); d) an indication of the time of payment; e) an indication of the place where payment is to be made; f) the name of the person to whom or to whose order payment is to be made; g) an indication of the date on which and the place where the bill is issued; h) the signature of the person who issues the bill (drawer). Except for the requirements provided in d), e) and g) in fine, the bill must contain all these elements, otherwise it is not valid (CCom, art. 1135, 1).
In a bill of exchange, the drawer gives an order of payment to the drawee for the benefit of the payee. The payee can later transfer the holdership of the bill by endorsement. The drawer must guarantee, at least , the payment of the bill (CCom, art. 1142) in case the drawee does not pay or cannot pay. But the obligation of guarantee applies not only to the drawer, but also to the endorsing payee and further endorsers, as well as to the provider of 'aval' (a personal guarantor similar to the bond ('fiança') provider - see CCom, arts. 1163 ff., in special CCom, art. 1165). There is a difference, however: while the drawer has an obligation of guarantee towards any holder of the bill, each endorser only guarantees towards further endorsees.
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The exchange guarantee takes places by means of demanding its payment (presenting the bill for payment - CCom, art. 1171 ff; in case payment is not done, the holder of the bill must protest for non-acceptance or non- payment (CCom, art. 1177), unless there is a clause dispensing protest (CCom, art. 1179). The bill benefits a joint liability since each one of the drawers, acceptors, endorsers or guarantors, or all together, can be called to pay (CCom, art. 1180). However, the drawee is only bound to pay upon acceptance of the bill, thereby becoming acceptor (see CCom, arts. 1154 ff.).
Bills of exchange have the following characteristics: incorporation, literality, abstraction, and autonomy. · Incorporation means that the obligation is incorporated in the instrument. In other words, who owns the document owns the right, meaning that it is enough to be the legitimate holder upon a continuous series of endorsements to have the right to claim and receive payment. This is so important because the good faith holder of the bill prevails over a previous holder that unfairly lost its possession (CCom, art. 1149)
· Literality means that the existence and content of the obligation is defined by the document (quod non est in cambio non est in mundo). This is another dimension of incorporation of the credit in the bill. But it goes further to justify the protection of the good faith holder in terms that several defects of will cannot be opposed to him, thus making circulation easier.
· Abstraction means that the causal or underlying business is separated from the bill of exchange. In fact, the defects of the causal or underlying transaction (e.g., exceptio inadimpleti contractus) cannot be opposed to subsequent good faith holders of the bill. However, in case they are in bad faith (exceptio doli) those defenses can be opposed to them.
· Autonomy means that exceptions of the causal transaction cannot be opposed to subsequent holders in good faith (appraised at the moment of acquisition of the bill - mala fides superveniens non nocet), and that the legitimate holder of the bill has an autonomous right, and therefore a previous holder that unfairly...
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