Bill of Exchange Law

3. Bills of Exchange - Economic Importance

Originally, the bill of exchange served for exchange of currencies and for a safe transport of financial means for longer distances. These, formerly main functions of bill of exchange, were in the course, taken over by other instruments. In the time of modern banking and in the time of prompt non-cash payments, the bill of exchange is used as a security instrument; in addition, it can also become a payment, credit and/or deposit means.

Regarding the relations, which create an economic basis of a bill of exchange, bill of exchange can usually play two roles - payment or security instrument. Decisive is an agreement of participants, bill of exchange as such is from this point of view abstract and its purpose is usually not noticeable.

As concerns payment using a bill of exchange, there are two variants possible: payment by a bill of exchange and payment by means of bill of exchange. If parties agree on payment by a bill of exchange (professional resources speak about a bill of exchange issued "pro soluto"), it actually concerns exchange of bill of exchange against performance of the contract. The obligation which creates the basis for a pertinent bill of exchange obligation (so called causal relation) extinguishes in the moment of transfer of the bill of exchange to a creditor. Other relations among affected parties have in principle bill character. Bill of exchange plays a similar role as money there. In practice, payment by means of bill of exchange (bill of exchange issued "pro solvendo"), which is stipulated by Sec. 334 of Commercial Code. Payment by means of bill of exchange does not concern termination of duty arising from causal relation. But the payment of bill of exchange (also payment to the next indorsee, on whom the bill of exchange was in the meantime indorsed) at the same time terminates obligation implying from causal relation.

The most often is the bill of exchange used as a security. Security bill of exchange should be used by creditor only if claim arising from causal relation was not met properly and on time.