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A bill is a debtor certificated security by which the drawer promises to pay a certain person a sum of money or directs someone else to pay another person. The law places certain requirements on the formalities of the bill, but on the other hand, a properly completed bill has the advantage of expedited court proceedings, where the debtor has only limited possibilities to object.

The legal regulation of bills is contained in Act No. 191/1950 Sb., the Bill of Exchange and Cheque Act. A bill is a “perfect security”, which means that rights and obligations arise only from this instrument and the information contained therein. A bill is also an abstract security. This means that there is no need to prove the legal reason for the creation of the bill. It can be in the form of a bill to order or a registered bill. By law (unless the drawer does otherwise), a bill is in the form of a bill to order. A bill in the form of a bearer bill is excluded. As it is a certificated security, it cannot be book-entered. In order to create a bill, ready-made pre-printed forms are often used. However, a bill can be drawn on virtually any tangible medium.

A bill can be used as a means of payment (Section 1909 of the Civil Code) or a security instrument, where it secures the discharge of a debt from another legal relationship (e.g. a loan or a credit).

In terms of types, the law distinguishes between a bill of exchange (Sections 1 to 74 of the Bill of Exchange and Cheque Act) and a promissory note (Sections 75 to 78).

Bill of exchange

By a bill of exchange, the drawer orders another person to pay a sum of money to another person. The order on the bill of exchange is most often introduced by the phrase “pay for this bill of exchange” (za tuto směnku zaplaťte). Therefore, as a rule, there is another person in this type of bill that acts as the drawee. This is the person who is to pay. However, the person must “accept” this position; the person cannot be committed without his/her knowledge. If the bill of exchange is accepted, the drawee becomes the primary debtor of the creditor (also referred to as “payee”) (Article I, Section 28 of the Bill of Exchange and Cheque Act) and the drawer becomes the next (secondary) debtor. The creditor (or the owner) is in a better, more advantageous position when it has two potential debtors.

The elements of a bill of exchange are stipulated in Article I, Section 1 of the Bill of Exchange and Cheque Act. They include:

  • An indication that it is a bill of exchange embodied in the actual text of the instrument and expressed in the language in which the instrument is drawn up – that is, the designation “bill of exchange” in the language in which the entire bill is drawn up.
  • An unconditional order to pay a sum of money – this order is most often expressed by the word “pay”. The amount of money is expressed either verbally or numerically (or in both ways – in case of their conflict, the verbal expression of the amount prevails).
  • The name of the person who is to pay (drawee).
  • Maturity data – this data may be absent; in such a case, the bill of exchange is a sight draft (Article I, Section 2(2) of the Bill of Exchange and Cheque Act). As for the actual specification of the maturity date, it is not recommended to specify a time period of “less” than days, otherwise the bill of exchange is invalid.
  • An indication of the place where payment is to be made – the place should be specific, for example, a general indication of the city is sufficient; if more than one place is indicated, the bill is invalid.
  • The name of the person to whom or to whose order payment is to be made (also known as the payee).
  • The date on which and the place where the bill of exchange was issued – if not specified, the law presumes that it was issued at the place indicated by the name of the drawer (Article I, Section 2(4)).
  • Signature of the drawer – it must be handwritten.

Promissory note

By a promissory note, the promisor promises to pay a certain sum of money to the creditor. Therefore, it contains a phrase such as “I will pay the amount of this promissory note”. In this type of bill, only two persons are involved (although there may be cases where only two persons are involved in a bill of exchange as well).

The elements of a promissory note are practically similar to those of a bill of exchange. Article I, Section 75 of the Act states the following:

  • An indication that it is a promissory note embodied in the actual text of the instrument and expressed in the language in which the instrument is drawn up.
  • An unconditional promise to pay a certain sum of money.
  • Maturity data.
  • The place where the payment is to be made.
  • The name of the person to whom or to whose order payment is to be made.
  • The date and place of issue of the promissory note.
  • Signature of the promisor.

The promissory note does not logically contain the name of the drawee.

Transfers of bills

Bills can be transferred to other persons. It can be done by:

  • An endorsement – it is a written statement of the transferor on the bill (or the allonge; Article I, Section 13(1) of the Bill of Exchange and Cheque Act) regarding the transfer of this security.  Any bill, even those not issued to order, may be transferred by an endorsement (Article I, Section 11(1) of the Bill of Exchange and Cheque Act).  The endorsement transfers all rights under the bill (Article I, Section 14(1) of the Bill of Exchange and Cheque Act).
  • Assignment of the receivable if the drawer has excluded the possibility of transferring the bill by an endorsement. According to the law, if the drawer has included the words “not to order” or a different clause of the same meaning in the bill, the bill can be transferred only in the form and with the effects of an ordinary assignment (Article I, Section 11(2)).
  • “Blanket tradition” – in this case, the security is only delivered; the bill contains an endorsement, but there is no designation of a specific transferee. This fact is used by the new owner of the bill, who does not have to fill it in and can pass it on to another person.

Blank bill

Both the bill of exchange and the promissory note may take the form of a “blank bill”. It is an instrument that is purposefully left incomplete. It intentionally contains blank fields to be filled in by a person other than the drawer. However, despite this, the instrument is signed by the drawer. Initially, it is not a bill at all since it does not fulfil the legal requirements. It becomes a valid bill by completing the necessary requirements.

There is a contract between the drawer of the bill and its owner (which may also be agreed orally), which specifies the particulars to be completed in the bill. Such a contract gives rise to a person’s right to complete the bill. This right is linked to the instrument, so if the bill is transferred, this right to complete the bill may also be transferred. It may happen that the bill is completed contrary to the agreement. In such a case, the debtor may defend himself by objections. 

Strictness of bills

Bills are characterised by their emphasis on formalities, which are not only laid down by law but also developed over time by case-law. Failure to comply with the requirements for bills may result in their invalidity. The interpretation of a bill is practically based only on the content of the instrument. In this context, we can also cite the decision of the Supreme Court, File No. 28 Cdo 4497/2009, which states: “Since the acquirer of a bill has only the bill as such, only the bill instrument can be taken into account in interpreting the bill and other circumstances can only be taken into account if they would have to be known to any third party.” The Constitutional Court also later commented on this strong formalism in the case under File No. III.ÚS 3660/11 of 14 March 2012, where it stated that “Even in the case of formalised legal acts (such as a bill), the actual content of the will expressed in the relevant form cannot be completely disregarded. If the courts do not do so as a result of excessive formalism, they will violate the party’s right to a fair trial within the meaning of Article 36(1) of the Charter of Fundamental Rights and Freedoms and the principle of equality of parties under Article 37(3) of the Charter.”

As an example of the strictness of bills, we can mention a case from the above-quoted decision of the Constitutional Court. The Supreme Court concluded that the frames inside the bill set the text of the bill apart from the body of the bill, rendering it invalid. However, the Constitutional Court disagreed that the creation of the frames should cause the exclusion of the text.

On the other hand, however, the decision also states that the bill “constitutes a certain coherent text, the content of which is the bill statement. From this point of view, instruments drawn up as an incoherent list of individual items without a mutual linguistic connection will not normally be valid bills.

The strictness of bills also manifests itself in other areas. For example, the signature of the drawer of the bill must be placed at the bottom of the instrument in order to “cover” the entire text, otherwise disputes may arise as to whether certain information is part of the instrument. It may also be mentioned that a bill is invalid if it indicates two different types of currency in the amount of the bill or if the place where the payment is to be made is indicated indefinitely or in an alternative manner. The same consequences are also caused by too much precision, where maturity is specified as a unit of time more specific than a day.

Another peculiar aspect is the various meanings of signatures on the bill. If there is a signature on the obverse side of the bill (other than the drawer’s signature), it may refer to an avalist, whereas a signature on the reverse side of the instrument may indicate a blank endorsement.

Procedural aspects

The proceedings in matters of bills and cheques are regulated by Section 175 of Act No. 99/1963 Sb., the Civil Procedure Code, and are “order proceedings”. This is a type of proceedings in which the court does not have to order a hearing. It therefore also falls under the category of summary proceedings. Pursuant to the Civil Procedure Code, the court competent to issue a bill or cheque payment order is the regional court in whose district the defendant resides or in whose district the place of payment is located (Section 87(e) of the Civil Procedure Code). The proceedings are initiated on the basis of a petition, in which the petitioner seeks the issue of a bill or cheque payment order. The court will not issue an order without the petitioner’s petition.

The petition to initiate the proceedings must be accompanied by the original of the bill or cheque. It is ascertained whether the bill or cheque contains all the elements required by law or other documents necessary for the exercise of the right under this security. At this stage of the proceedings, only documents are examined. If the petitioner fails to produce these documents, the court will order a standard hearing. If the court finds no deficiencies in the documents, it will issue a judicial order.

The defendant may lodge reasoned objections to the order within 15 days from the date of its service. If no objections are filed, or if the court rejects them (if the objections are late, do not contain reasons, or were filed by an unauthorised person), the order has the effect of a final judgment. If the objections are not rejected, the legal force and enforceability of the order are suspended to the extent of the objections. Objections filed do not invalidate the order, only a hearing will be ordered to consider the objections raised. These may be directed against the validity of the bill or cheque or may be causal (in which case they concern the substantive basis of the relationship).

Objections may be withdrawn at any time. However, the court will discontinue the objection proceedings.

The court will decide on the objections in a judgment against which an appeal is admissible.

The statement on the costs of proceedings is appealed against, not opposed.

What situations do we typically handle for our clients regarding promissory notes?

  • Drawing up a bill
  • What are the formal requirements for a bill
  • What type of bill to choose for my case
  • Transfer of bills to another owner
  • Enforcement of bills
  • Authentication of bills
  • Issuance of a bill or cheque payment order
  • Filing reasoned objections to a court decision
  • Failure to meet the maturity date of the bill