On this occasion from Workcapital we want to tell you what are the Legal Requirements of a Promissory Note to contribute to the speed and efficiency of the transfer of the same.
Next we will explain what a Resident payment and what is its correct legal format, and we will review how it differs from the Promissory Note.
Finally we tell you, according to the characteristics of the promissory note, what is the Promissory Note Endorsement Procedure.
1. What is a Promissory Note?
A promissory note is a title of credit that contains the unconditional promise of a natural or legal person, committing to make the payment of a certain sum of money in a certain period of time.
This document is governed by Law 19/1985 of July 16, Exchange and Check.
2. Types of Promissory Notes
a) Depending on who the issuer is
⇒ bank promissory notes:
They are those granted by credit institutions and delivered to the beneficiary, printed on checkbooks by the entity itself. Generally, the payment address will be located in an account of said entity.
Within this typology are the Conformed Promissory Notes:
They are defined as exchange bills in which the bank that is going to pay it assures the beneficiary that the promissory note is issued from an account with funds in which the nominal amount of the promissory note is retained, thus ensuring that at expiration of the bill it will be serviced. .
The banking entity writes in the effect the expression "compliant", "certified" or another similar one, to indicate the condition of conformation of the promissory note, respecting the rest of the format of the promissory note.
⇒ Non-bank/company promissory note:
These are promissory notes issued by companies that may or may not be domiciled.
b) According to the clause "to order"
Notes can be issued to order and not to order. In the event that the promissory note is not to order, this text must be specified in the document itself with the words "Not to order".
The main difference between a promissory note to order and not to order lies in its possibility of assignment through endorsement.
⇒ promissory notes to order:
It can be endorsed. It greatly facilitates the use of the promissory note to be able to obtain financing before the stipulated date of collection, gaining liquidity. The notification of its assignment is not mandatory, transmitting a security and a faster collection.
⇒ Nominative Notes:
They are similar to the previous ones, but without a clause to the order, although they can be endorsed to a third party.
⇒ promissory notes not to order:
It may not be transferred to a third party by endorsement. The way to transfer it will be through a credit transfer.
The assignment of a promissory note not to order must be reported to the merchant that issued it in a reliable manner.
The amount of a promissory note not to the order is not usually paid until confirmation that the issuer and signatory of the bill has received notification of its assignment. In this way, all risk of non-payment is eliminated.
They have a tax advantage since they are not required to pay for the Tax on Documented Legal Acts, therefore, being free of stamps, there are cost savings.
c) Promissory notes according to the time of payment
⇒ I will pay on sight:
It must be paid at the time it is presented for collection.
⇒ I will pay on a fixed and determined day:
The expiration date to which the promissory note prescribes is determined exactly. Only these will be accepted in the promissory note discount.
⇒ Variable term promissory note from issue date:
A period of time is added in which the maturity will be calculated after the date of issuance.
⇒ I will pay without expiration:
The expiration date is specified on the day it is charged.
d) Promissory notes according to the form of payment
⇒ Crossed or barred promissory note:
It can only be collected by the holder specified in the document, by crediting the account.
There is the option of collecting it over the counter, as long as the holder is a client of the entity from which the promissory note is released.
On the obverse there are two parallel and diagonal lines that cross the entire promissory note.
There are two types of crossover notes:
– General Crusader: The name of any financial entity is not established between the two lines, so it can be charged by payment at any financial institution.
– Special Crusader: In this case, the financial entity is identified between the two lines. In this way, the promissory note must be collected by crediting an account of the aforementioned entity.
⇒ I will pay to credit account:
They can only be charged if they are credited to the account.
e) Notes as received
⇒ truncable:
It is represented by a barcode at the bottom. It can be collected without the need to physically deliver the document, for example, through a computer support.
⇒ not truncable:
It is necessary to keep the original document because it can only be collected by physically delivering it to the corresponding bank.
3. ¿What legal requirements must a promissory note contain?
Legal requirements for promissory notes can be found in the Exchange and check law in its article 94 et seq., the following being essential:
⇒ The denomination of "promissory note” inserted in the text of the title itself. The word promissory note can be written in Spanish or in any regional language, but the entire promissory note must be written entirely in the same language. (*1)
⇒ The pure promise and plain to pay a amount determined in official currency. voiced in numbers and in letters, being both coincident so that the promissory note is not invalidated. (*2)
⇒ The indication of the expiration. It is the moment in which the promissory note will be paid, it must always be a specific, possible and certain date. (*3)
⇒ The square, being the place where the payment is to be made (*4)
⇒ The name of the natural or legal person to whom the payment is to be made, called beneficiary/drawer. (*5)
⇒ The date and place the promissory note is signed (date of issue) (*6)
⇒ The signature of the issuer. That is the person or entity obligated to pay it when due. When the issuer of the promissory note is a company, the person who signs it on its behalf must state the name of the entity it represents, either by writing it, or by stamping or presignature of the company together with its signature, with the purpose that the one that is obliged to pay is the mercantile company. (*7)
4. ¿What is a direct debit payment?
Un paid direct debit is a payment document through which the issuer of the same communicates that it will make the payment of a fixed amount, on a certain date, on behalf of a third party.
As it is not an enforceable title, the guarantees for its beneficiary are much lower than in other types of documents such as promissory notes or bills of exchange.
Payment will be made from the date indicated in the document for payment.
The Credit Institution is only obliged to make the payment as long as it has not received an express order not to pay and there is sufficient availability in the paying customer's account.
Therefore, it is not a document guaranteed by the Credit Institution that issues it, however, financial institutions do not issue these payments to anyone, normally we will receive them from companies (by order of these to their bank) of a certain solvency.
The charge account of the paying customer must always be indicated.
As they are not documents classified by regulations, they are not transferable by endorsement either, so a credit must be assigned with reliable notification to the debtor with the same requirements as those paid not to order.
5. Direct Debit Payment Format
The format of a direct debit payment is very similar to a bank check. in his front (obverse) They are all practically the same, and must include:
- 1. Payment code or number
- 2. Date of issue
- 3. Payment date
- 4. Payer
- 5. Amount in numbers
- 6. Beneficiary
- 7. Amount in words
- 8. Document codes
- 9. Expiration
- 10. Pre-signature and signature of the bank
- 11. Data for electronic reading
The matter is on its reverse (back).
See below some examples:
Example 1
That the debtor of the commercial credits that total the amount indicated on the back has informed us that they exist.
That you have direct debited your payment to the indicated account, for which you have entrusted us, in your name, on your behalf and at the designated place, to attend to the creditor and receive notifications of the assignments of said credits that are made in favor of Bank entities. The assignment and notification may be extended on this same documentary support.
This informative and non-drawing document does not imply any guarantee from the Bank that, at the time the credits are payable, there are sufficient funds and the debtor has not revoked the order made to the Bank.
Note: We will need this document to be delivered to us, directly or through the banker who manages the collection, to access the reference codes it contains, unless said codes are provided to us through bank exchange procedures.
Example 2
Bank …………. , Certify that:
The payer has authorized ……………… to issue the DIRECT PAYMENT document on the front, stating that it corresponds to a commercial operation or provision of a service carried out by the Beneficiary of said document.
The ORDERER has entrusted ………….., that, in his name and on his behalf, we pay as payment managers, the amount of the debt.
DIRECT PAYMENT is an informative document. Banco …………… does not guarantee the success of the payment order it contains.
Note: The BENEFICIARY must designate the place of collection, because the Bank needs this document to be delivered to us, directly or through the Financial Institution that manages the collection.
6. Differences between Promissory Note and Direct Debit Payment
The main difference is that, with direct debit payments, the creditor is the one who initiates the collection operation.
In addition, a domiciled receipt has less legal weight than a promissory note, since the last is signed by both parties thus forcing the debtor to comply.
7. What is the endorsement of a promissory note
The endorsement is a written clause in the promissory note, by which the endorser or assignor (promissory note holder), by means of his signature and stamp, transmits to a third party or assignee (endorsee), all the rights derived from it, becoming from that same instant in obligatory change.
The promissory note endorsement is mainly used to assign the collection rights that a promissory note grants. That is, in exchange for an amount, a financial entity advances me the money of the value of that promissory note, before its expiration date.
There is no limitation to the number of endorsements as long as it is possible to make them. Each endorser becomes an exchange obligor and guarantor of collection.
Endorsed promissory notes, as long as they are based on a valid and uninterrupted series, grant their last holder the right to collect as the legitimate owner.
a) How we endorse a promissory note to obtain its liquidity in advance
⇒ In the case of promissory notes:
To endorse a promissory note, the phrase must be added to the document:
“Pay to…” with the name of the beneficiary.
However, the most common type of endorsement is that called bearer or blank endorsement, which consists of a promissory note in which the name of the new beneficiary does not appear and only includes the signature and stamp of the endorser on the back of the promissory note.
With this type of promissory note, the new beneficiary can perform three actions:
⇒ Fill in the blank endorsement
⇒ Endorse it again
⇒ Or issue the promissory note to a third party without completing the endorsement and without endorsing it.
⇒ In the case of promissory notes not to order or direct debit payments:
These are not transferable documents to third parties by endorsement, being only transferable by assignment of credit
The assignment of credit implies reliable communication to the issuer that the endorsement will proceed, being informed that its debt is now with our financial institution, and not with the one that was initially issued.
As long as the assignment is not notified, the drawee can pay his initial creditor, being released from paying the new one (assignee).
If, once the debtor has been notified of the assignment, he does not promptly expressly express his opposition to the assignment, it is understood that he has consented, even if tacitly, and is obliged to pay it to the new creditor (assignee) from the date of receipt of the notification, without consider valid the payments you could make to your former creditor.
b) How to cancel an endorsement already made
In the event that, after endorsing a promissory note, you want to cancel said endorsement, the correct way to do it is as follows:
The endorsement to be canceled must be crossed out with a cross and the following paragraph must be written below it:
"The preceding endorsement is crossed out for the purposes of Art.19 of the LCCH"
c) How to save a wrongly made endorsement
You must be very careful when completing the necessary data in each promissory note to prevent it from being cancelled, and the endorsement must be well done, following an order. If it is wrongly endorsed it will not be accepted.
What happens if you make a mistake in endorsing the promissory note?
As in the previous case, the endorsement to be canceled must be crossed out with a cross and the following paragraph must be written below it:
"The preceding endorsement is crossed out for the purposes of Art.19 of the LCCH"
Subsequently, the endorsement would be made again by adding the phrase in the document:
"Pay to…"
with the name of the beneficiary or the most common endorsement, which does not include the name of the new beneficiary and only includes the signature and stamp of the endorser on the back of the promissory note.
