Bills Of Exchange, Promissory Notes and Checks.

a. General Discussion.

Bills of exchange, promissory notes, and checks are classified in the Russian law as valuable papers. The category of valuable papers includes also shares of stock, obligations, treasury notes, bills of lading and other documents certifying the economic right. Strict formal rules apply to the form of valuable papers, and especially bills of exchange and promissory notes. Defects of form of valuable papers may render them void or at least deprive such documents of the special status of valuable paper.

b. Bills of Exchange and Promissory Notes.

Regulation of bills of exchange and promissory notes is included in the RF Civil Code, the RF Federal Law On Bills of Exchange and Promissory Notes of 11 March 1997 No. 48-FZ and Regulations On Bills of Exchange and Promissory Notes adopted on 7 August 1937. The RF is a party to the Convention Providing a Uniform Law For Bills of Exchange and Promissory Notes and the Convention for the Settlement of Certain Conflicts of Law in connection with Bills of Exchange and Promissory Notes made in Geneva on 7 June 1930.

Bills of exchange and promissory notes may be issued and are binding for individuals and legal entities. The RF, subunits of the RF and municipalities may issue bills of exchange/promissory notes and become bound thereby only in cases specially provided by a federal law.

Both of these types of valuable papers may be issued only in written documentary (hard copy) form.

A bill of exchange must contain following data:
(i) The term “bill of exchange” inserted in the body of the instrument and expressed in the language employed in drawing up the instrument;
(ii) An unconditional order to pay a determinate sum of money;
(iii) The name of the person who is to pay (drawee);
(iv) A statement of the time of payment (In case such time is not stated, the bill of exchange is payable at sight);
(v) A statement of the place where payment is to be made (If such a place is not indicated payment shall be made at the place indicated beside the name of the drawee);
(vi) The name of the person to whom or to whose order payment is to be made;
(vii) A statement of the date and of the place where the bill is issued (If the place of making of bill of exchange is not indicated it is considered to be made at the place indicated alongside with the designation of its drawer); and
(viii) The signature of the person who issues the bill (drawer).

Absence in the document of any of the above mentioned requisites deprives it of its affect as a bill of exchange.

A promissory note must contain:
(i) The term “promissory note” inserted in the body of the instrument and expressed in the language employed in drawing up the instrument;
(ii) An unconditional promise to pay a determinate sum of money;
(iii) A statement of the time of payment (if such time is not stated, the promissory note shall be paid at sight);
(iv) A statement of the place where payment is to be made (If such a place is not indicated the place where the instrument is made is deemed to be the place of payment and at the same time the place of the domicile of the maker);
(v) The name of the person to whom or to whose order payment is to be made;
(vi) A statement of the date and place where promissory note is issued (if the place of making of promissory note is not indicated it is considered to be made at the place indicated alongside with the name of its maker); and
(vii) The signature of the person who issues the note (maker).

Issue of a promissory note transforms the underlying monetary obligation into the obligation under the promissory note.

c. Checks.

The Russian law defines a check as a valuable paper containing an unconditional order by the issuer of the check to bank to make payment of the amount indicated in it to the holder of the check. Checks are not commonly used in Russia in commercial transactions. The prevailing use of checks is to allow employee to withdraw cash from bank accounts (the company manager issues checks to the employee`s name authorizing the bank to disburse cash to payee). No “stop payment” orders can be made in respect of a check, check remains valid until expiration date.

A check must contain:
(i) The term “check”;
(ii) Designation of a payor and an indication of the account from which payment must be made. Only a bank may be a payor on a check;
(iii) An unconditional order to designated payor to pay a determinate sum of money;
(iv) An indication of the currency of payment;
(v) An indication of the date and place of the making of the check. If such a place is not indicated the check is considered as made in the place of location of its maker; and
(vi) The signature of the maker of the check.

A document in which any of the mentioned requisites is missing does not have an effect of a check.

The underlying monetary obligation is extinguished not by the issuance of a check, but only by a payment on check. An endorsement of a transferable check to the payor has the effect of a signature for the receipt of payment.

d. Endorsements.

(i) Bills of exchange/ promissory notes may be transferred by endorsement unless marked by maker of a bill of exchange or promissory note may elect to avoid possibility of its endorsement by an encryption “not order”. In such a case a bill of exchange or a promissory note may be transferred according to rules of assignment of debt (cession).

Endorsement may be made in favor of any person including payor and maker. Endorsement must be unconditional. Any condition of endorsement is considered unwritten. Partial endorsements are invalid.

(ii) Checks may be transferable and non-transferable. A check made to a certain name is not subject to transfer by endorsement or otherwise.

e. Presentation and Protest.

(i) Bills of exchange and promissory notes payable at a certain time must be presented for payment on the day when payment must be made or within two following business days thereafter. Refusal to pay on bill of exchange or promissory note must be confirmed by protest for non-payment made by a notary. Execution of protest shall take place on the day when payment must be made or within two business days thereafter.

Similar rules apply to presentation for acceptance and protest for non-acceptance.

The holder of dishonored bill of exchange or promissory note must give notice of non-acceptance or non-payment to his endorser and to the drawer within the four business days which follow the day for protest or, in case of a stipulation “retour sans frais”, the day for presentment. Every endorser must notify his endorser of the notice he has received within the two following business days.

Upon expiration of time fixed (1) or the presentation of a bill of exchange drawn at sight or at a fixed period after sight, which is one year unless other time is specified in the note, (2) for drawing up the protest for non-acceptance or non-payment, (3) for presentment for payment in the case of a stipulation retour sans frais the holder may recover amounts due only from the acceptor, but loses the rights of recourse against the endorsers and the drawer.

In case of default to present the bill of exchange/promissory note for acceptance within the limit of time stipulated by the drawer, the holder loses his right of recourse for non-payment, as well as for non-acceptance against the drawer, unless it appears from the terms of the stipulation that the drawer only meant to release himself from the guarantee of acceptance.

(ii) Presentation of a check at a bank serving the holder of the check for collection is considered as presentation of a check for payment refusal to pay a check must be confirmed by either of the following methods:
(A) protest made by a notary;
(B) notice of payor on the check in refusal to pay it with indication of the date of presentation of a check for payment; or
(C) notice of a collecting bank with an indication of the date of presentation of a check for payment.

The holder of a check is obliged to notify its endorser and the maker of the check of non-payment within two business days after execution of the protest. Each endorser is obliged to communicate the notice of non-payment to its endorser within two business days after receiving the notice. A failure to give a notice of non-payment does not render the check void, but entails an obligation of a holder or endorser concerned to compensate damage caused by such failure.

f. Recourse and Non-Recourse.

(i) A drawer, endorsers and persons guaranteeing payment by aval are jointly and severally liable before holder of a bill of exchange/promissory note for payment, except where endorsement was made after execution of protest or expiry of term for presentation. In two latter cases an endorsement has the effect of assignment of debt (cession). An endorser may elect to discharge itself from such joint and several liability by writing alongside with endorsement words “without recourse”. This clause does not exempt joint and several liability of further endorsers.

(ii) In case of refusal of the payor to make payment on a check, the holder of the check has an option to sue one, several or all persons obligated on the check (maker, a person guaranteeing payment by aval, endorser). These persons are jointly and severally liable before the holder.

g. Legal Interest Rate.

(i) A bill of exchange/promissory note may include provisions on interest. The Russian law does not limit a rate of interest to be paid on bill of exchange/promissory note. In case the interest is not indicated in a bill of exchange/promissory note, interest accrues from the maturity date of bill of exchange/promissory note, the rate of interest is determined by the bank interest rate existing on the day of actual payment in the place of location of creditor in accordance with Art. 395 of the RF Civil Code (Art. 3 of the law On Bills of Exchange and Promissory Notes of 11 March 1997 No. 48-FZ).

(ii) A check cannot include a provision specifying any interest on the amount of money to be paid. An indication on interest in a check is considered as not having been written.