Alongside the cheque, Kuwaiti commercial law regulates two other negotiable instruments in daily use: the bill of exchange and the promissory note. Anyone unfamiliar with their mandatory particulars and endorsement rules risks holding a paper with no negotiable value.
The golden rule: a negotiable instrument tolerates no omission — a single missing particular can strip it of its negotiable character and reduce it to an ordinary acknowledgement of debt.
Contents
1) Types of Commercial Paper
Bill of exchange
A written order from the drawer to the drawee to pay a specified sum to the payee on a fixed date. Three parties.
Promissory note
A written promise by the maker to pay a specified sum to the payee. Two parties only — no acceptance required.
The cheque differs from both in being always payable on demand and incapable of deferral. See our guide to dishonoured cheques.
2) The Bill of Exchange: Definition and Particulars
A bill of exchange must contain the following particulars or it loses its character:
- The words "bill of exchange" in the body of the instrument.
- An unconditional order to pay a specified sum.
- The name of the drawee.
- The maturity date.
- The place of payment.
- The name of the payee.
- The date and place of issue.
- The drawer's signature.
Effect of omission: if any mandatory particular is missing the instrument is not treated as a bill of exchange and loses the special protection afforded to negotiable instruments.
3) The Promissory Note
Simpler than the bill because no acceptance is required. Mandatory particulars:
- The words "promissory note" in the body of the instrument.
- An unconditional promise to pay a specified sum.
- The maturity date.
- The place of payment.
- The name of the payee.
- The date and place of issue.
- The maker's signature.
A key difference: the maker of a promissory note is treated as the acceptor of a bill — the primary obligor liable to pay directly. No presentment for acceptance is needed.
4) Endorsement and Transfer
Endorsement is the negotiable-instrument mechanism for transferring the right.
- Transfer endorsement: passes all rights under the instrument to the endorsee.
- Collection endorsement: authorises the endorsee to collect on behalf of the endorser.
- Pledge endorsement: makes the instrument collateral for the endorsee's claim.
The crucial effect: a bona-fide endorsee acquires an independent right unaffected by personal defences between prior parties — the core of the doctrine of cutting off defences.
5) Aval (Guarantee for Payment)
A third party may guarantee payment of the bill or note in whole or in part:
- Written on the instrument itself or on an allonge.
- The guarantor's obligation is independent of the guaranteed party's obligation — it remains valid even if the latter's obligation is void on formal grounds.
- If the guarantor pays, they are subrogated to the holder's rights against the guaranteed party and all prior parties.
Common confusion: the aval is often confused with civil suretyship. An aval is an independent negotiable-instrument obligation; suretyship is accessory and follows the principal debt.
6) Presentment and Protest
To preserve the right of recourse the holder must:
- Present the bill for acceptance (if payable a fixed period after sight) and then for payment on the maturity date or the two following business days.
- Draw up a protest of non-acceptance or non-payment through a notary public within the statutory time limits.
- Notify the endorser and drawer of the non-acceptance or non-payment within four business days of the protest.
The penalty for neglect: a holder who fails to present the instrument and draw up the protest in time loses the right of recourse against endorsers, the drawer and their guarantors — retaining recourse only against the acceptor.
7) Recourse
Against whom?
- The drawer.
- The acceptor (the drawee who accepted).
- Endorsers.
- Guarantors (aval).
What does it cover?
- The unpaid principal amount.
- Statutory interest from the maturity date.
- Costs of the protest and notifications.
- Commission not exceeding one sixth of one per cent.
Joint and several liability: all parties liable on the bill — drawer, acceptor, endorsers and guarantors — are liable jointly and severally to the holder. The holder may sue them individually or collectively without regard to the order of their signatures.
8) Limitation
Limitation periods
- 3 years — holder's action against the acceptor from the maturity date.
- 1 year — holder's action against endorsers and the drawer from the date of protest or maturity.
- 6 months — endorsers' actions against each other and against the drawer.
Interruption
- Filing a lawsuit.
- Written acknowledgement of the debt.
- Attachment or enforcement proceedings.
Warning: limitation of the negotiable-instrument obligation does not extinguish the debt itself — the creditor may still bring an unjust enrichment action if the debtor is shown to have been enriched at their expense.
Do you hold a bill of exchange or promissory note you need to collect or challenge? Contact Attorney Meshari Obaid Al-Enezi — Yumnaak Law Firm.
