The Status of Bills of Exchange in Laws and in Practice

Serbian legislation does not define a bill of exchange. Therefore, a bill of exchange could be defined in several ways: through the designation and listing of its essential elements and characteristics, which are primarily prescribed by the Law on Bills of Exchange (Official Gazette of the FNRJ, No. 104/46, Official Gazette of the SFRY, No. 16/65, 54/70 and 57/89, Official Gazette of the SRJ, No. 46/96 and Official Gazette of the SCG, No. 1/2003 – Constitutional Charter), then as a credible document on the basis of which enforcement proceedings can be initiated, and which is provided for by the Law on Enforcement and Security (Official Gazette of RS, No. 106/2015, 106/2016 – authentic interpretation, 113/2017 – authentic interpretation, 54/2019, 9/2020 – authentic interpretation and 10/2023 – other law), and also as a means of securing various encumbrance contracts, most often the Credit Agreement, as well as in many other ways. As such, a bill of exchange occupies a very important place and has an irreplaceable role in the framework of debt collection.

The essential elements of a bill of exchange and the basic characteristics of a bill of exchange are contained in the Law on Bills of Exchange. Article 1 of the mentioned law prescribes that a drawn bill of exchange contains the designation that the subject document is a bill of exchange, an unconditional instruction to pay a certain sum of money, the name of the person who is obligated to pay that sum of money – the drawee, the place where payment is to be made, the name of the person to whom or to whose order payment must be made (remitter), the indication of the day and place of issue of the bill of exchange, and the signature of the person who issued the bill of exchange (drawer). If any of the enumerated elements is missing, that document will not have the property of a drawn bill of exchange, except in the case of presumed bill of exchange elements, such as the indication of the due date, place of payment and place of issue. Thus, the Law on Bills of Exchange further prescribes that if the due date is not marked on the bill of exchange, it is considered that the bill of exchange falls due on sight; as the place of payment, in the event that it is not indicated, the place indicated next to the drawee’s name is taken, and the place of issue is considered to have been issued in the place indicated next to the drawer’s signature.

In the case of drawn bills of exchange, bill of exchange lawsuits also play a very important role. Their filing may result in several situations provided for by the Law on Bills of Exchange. First of all, if the acceptor – the person who undertakes to pay the bill of exchange at maturity – does not voluntarily pay the sum of money from the bill of exchange, and the regressive bill of exchange debtors do not pay it either, the bill of exchange creditor may initiate court proceedings by filing a bill of exchange lawsuit. The limitation periods for filing a lawsuit differ depending on who it is filed against, so if it is filed against the acceptor as the main bill of exchange debtor, the limitation period is three years from the date of maturity of the bill of exchange. If it is filed against the issuer of the bill of exchange or the endorser – the person who is liable for the acceptance and payment of the bill of exchange – then the lawsuit is filed within one year from the date of protest, or from the due date if protest was not mandatory, while regressive bill of exchange debtors may file bill of exchange lawsuits against each other within six months from the date of redemption of the bill of exchange.

In addition to the drawn bill of exchange, the Law on Bills of Exchange also recognizes the solo bill of exchange. The basic difference between a drawn bill of exchange and a solo bill of exchange is that in a solo bill of exchange there is no indication of the person who is to pay the sum from the bill of exchange – the drawee. This person is not designated precisely because the person who issues the bill of exchange is also obligated to pay the sum of money indicated in the bill of exchange. In addition to drawn and solo bills of exchange, there are also so-called blank bills of exchange, which are very important and widespread as a means of securing various contracts, primarily the Credit Agreement. A blank bill of exchange is a bill of exchange document that one party hands over to another when concluding an agreement, with the authorization that the other party may fill it in if the first party does not fulfill its monetary obligation. On the basis of such a bill of exchange, the creditor can initiate enforcement proceedings against its issuer. On the basis of the bill of exchange authorization, the creditor fills in the bill of exchange in accordance with the concluded agreement, to secure which the blank bill of exchange was issued.

Article 52 of the Law on Enforcement and Security classifies bills of exchange as authentic documents:

1. Authentic documents are: Domestic and foreign bills of exchange and checks, with protest if necessary to establish the claim.

A bill of exchange as an authentic document is the most privileged authentic document for the following reasons:

First of all, Article 67 of the Law on Enforcement and Security stipulates that: In the Decision on Enforcement on the basis of an authentic document, the debtor is obliged to pay the monetary claim of the creditor within 8 days from the date of delivery of the Decision, and in bill of exchange and check disputes within 5 days.

Article 86 of the said Law stipulates: The objection of the debtor shall defer the enforcement of the Decision on Enforcement on the basis of an authentic document until it becomes final, except if the Decision on Enforcement was made on the basis of a bill of exchange.

This is of exceptional importance in practice, because in the case of a Decision on Enforcement on the basis of a bill of exchange, the public enforcement officer can immediately commence enforcement, instead of waiting with the enforcement activities until the Decision becomes final by the court that issued it, which can take a long time even if the debtor does not file an objection. During this time, the debtor may dispose of part of his property, which further prolongs the time and cost for the creditor to collect his claim in full. In this regard, Article 90 paragraph 5 of the Law on Enforcement and Security is also of exceptional importance, as it stipulates: If the Decision on Enforcement was made on the basis of a bill of exchange, and the court upholds the debtor’s objection and orders that the proceedings continue as ordinary proceedings on the objection to the payment order, the court will order a stay in the enforcement proceedings until the final conclusion of the ordinary proceedings, and the enforcement measures carried out up to that point shall not be annulled. This is also of great importance, because the creditor has enough time to propose, and the public enforcement officer to commence enforcement, e.g. if the debtor owns unencumbered real estate registered in the land register in his name, the public enforcement officer may by Decision order the entry of a note of the Decision on Enforcement, and thus prevent the debtor from further disposing of his property.

Also, there is a possibility of conducting an abbreviated enforcement procedure on the basis of a bill of exchange if the creditor and the debtor are subjects for the resolution of whose disputes the Commercial Court is competent in accordance with the law, which procedure is specific in that the deadline for filing an objection is shorter (five days), and is characterized by shorter deadlines for the court to proceed with it, which also speeds up the process of collecting the creditor’s claim.

As already mentioned, bills of exchange are most commonly used as a means or instrument of security for credit agreements, where the main debtors or guarantors sign their own/blank bills of exchange, with the authorization that upon maturity, the lender may fill in the bill of exchange with the “without protest” clause and “activate” it for collection.

Another law that prescribes significant provisions related to bills of exchange is the Law on Payment Transactions (“Official Gazette of the FRY”, No. 3/2002 and 5/2003 and “Official Gazette of the RS”, No. 43/2004, 62/2006, 111/2009 – other law, 31/2011 and 139/2014 – other law). Article 47 of the said Law prescribes that compulsory collection from the client’s account is performed from all accounts with banks where he has funds, and it is performed, among other things, on the basis of orders from creditors on the basis of due securities, bills of exchange or authorizations that the debtor has given to his bank and his creditor, according to time of receipt. This method of compulsory collection is applied if both bills of exchange and authorizations are registered in the register of bills of exchange and authorizations kept by the National Bank of Serbia, which also performs this method of compulsory collection, which is of exceptional importance because in the described case the judicial procedure is bypassed, and only a creditor’s order is needed for collection, on the condition that the bill of exchange is registered. The debtor submits the request for registration of the bill of exchange to his bank, which issues a certificate of registered bills of exchange. Otherwise, the Register of Bills of Exchange is a public book, and the data from the Register are publicly available data that can be found on the website of the National Bank of Serbia. The current practice of the Register of Bills of Exchange shows that only bills of exchange issued by legal entities can be found in the Register of Bills of Exchange, and we come to the conclusion that bills of exchange of natural persons cannot be registered in the above-described manner, and that this method of satisfaction is reserved only for legal entities as debtors, which has been shown by previous practice, or that banks cannot find a way to register a bill of exchange issued by a natural person because they cannot adequately determine the method of issuer of the bill of exchange. Also, a disadvantage of bills of exchange in this method of satisfying creditors is that the bill of exchange is only in the third order of priority among the grounds for compulsory collection, together with other securities, and this is behind the enforceable decisions of tax, customs and other competent authorities, which are in the first priority, while in the second are enforceable court decisions, other enforceable titles and legal authorizations.

When it comes to court disputes arising from bills of exchange, in practice the filing of the above-described bill of exchange lawsuits and the conduct of such disputes is underrepresented, and represents a rarity in the practice of our courts. In contrast to them, lawsuits filed to establish that the content of a bill of exchange has been entered incorrectly, or that a blankly filled-in bill of exchange represents an untrue document, as well as proceedings that have turned from enforcement into litigation, and which were initiated on the basis of a bill of exchange, are much more common.

In accordance with the already established practice of our courts, the burden of proof that the bill of exchange has been abused, i.e. that it has been filled in contrary to the bill of exchange authorization, is always on the bill of exchange debtor, since there is a legal presumption that the person who has given a blankly signed bill of exchange has also authorized that person to fill in all the other elements of the bill of exchange, and that the legally relevant will of the issuer of the bill of exchange is precisely that which is contained in the bill of exchange document at the moment of its use. Therefore, the burden of proof that the bill of exchange as a security has not been filled in accordance with the bill of exchange authorization is on the bill of exchange debtor.

In practice, bill of exchange debtors challenge the bill of exchange most often for two reasons: in terms of the amount of money, i.e. the sum of money indicated in the bill of exchange, and in terms of the signature on the bill of exchange, claiming that the bill of exchange was not signed and issued by them as bill of exchange debtors. The bill of exchange creditor has at his disposal several ways to prove the truthfulness of the content of the bill of exchange, including: expert evidence by an expert in economics and finance if the amount of money indicated in the bill of exchange is disputed, or on the circumstances of the amount of the claim that the creditor is seeking from the debtor, as well as graphological expertise if the debtor denies signing the bill of exchange, or on the circumstance of whether the debtor’s signature from the period when the bill of exchange was issued is identical to his handwriting, and whether it was signed by the same person. The creditor may also attach a certificate of the state of debt or a calculation of interest to the lawsuit, in order to prove/justify the amount indicated in the bill of exchange. Since these procedures mostly end in favor of the creditor, if the claim is filed in a timely manner, and since debtors often try to prolong the collection proceedings by raising the objection of the amount of the debt, so that the enforcement proceedings will turn into litigation, where the creditor will have to conduct the entire court process in order to first prove his claim and then collect it in enforcement proceedings, and especially when we take into account the number of credit transactions that are concluded and the bills of exchange that are issued to secure them on the territory of our country, it would be more efficient and appropriate to “raise” the enforcement proceedings conducted on the basis of a bill of exchange to the level of deciding on an appeal against the Decision on enforcement on the basis of an enforceable instrument, in terms of deciding on an objection, in which way the litigation proceedings on the objection to the payment order would be avoided.

A bill of exchange, as a means of security, although it does not always represent the main, principal means of security, but rather a mortgage, especially in the case of housing loan agreements, is a very important and often necessary additional means of security, especially in situations where the mortgaged property, under the assumption that the credit line has not been paid in full, or will not be paid at all, will not be sufficient to cover the creditor’s claim in full. In such cases, the bill of exchange takes on the main role in satisfying the creditor, since on its basis the creditor can satisfy his due claim from the debtor’s entire property. For this reason, the designation of a bill of exchange as a means of security is justifiably an indispensable part of the Credit Agreement.

In conclusion, we would describe and classify bills of exchange as exceptionally useful and important documents in the banking and financial sector, whose advantages and benefits greatly facilitate the existence and satisfaction of all types of credit transactions, and we can conclude that they for good reason represent a significant institution in our legal system.