Commercial Papers

Credit Devices

▪ Commercial papers are the most common credit devices

(or payment instruments) utilized in business today
(domestic or international).
▪ Commercial papers are written promises or orders to pay
money, when in proper form, may be transferred from
hand to hand as a substitute for money.
▪ Commercial Papers are negotiable instruments; they are
written documents transferable to third parties by delivery
and endorsement.
▪ Commercial papers may be traded on the secondary
market.
Definition of Commercial Papers

Art 478 Commercial Transactions Law (CTC)

▪“Instruments that are written according to forms specified by
the law. They constitute a right, the subject of which is a certain
amount of money, due for payment upon presentation or after a
fixed or determinable time. They are commercially negotiable,
and customarily accepted as an instrument of payment instead
of money”.
▪Instruments means written documents.
▪CTC lists 3 types of commercial papers:
– Bill of Exchange
– Promissory Note
– Cheque (Check or Draft)
CHEQUE
Definition (Art 483 CTC)

▪ Cheque is “a commercial paper containing an order

issued by (1) the drawer to (2) the bank (the drawee)
to pay, on the date specified on the cheque as the date
of issue, a certain sum of money to a (3) third party
(the payee or the bearer of the cheque)”.
Cheque Sample
Salient Features of a Cheque

▪ Cheque is always drawn on a bank.

▪ It can only be payable on the date specified in it as the
date in which it is drawn.
▪ It may be made payable to bearer (in physical possession
of instrument).
▪ It may be crossed (specific instructions that funds may
only be deposited directly into bank account).
▪ The drawer’s (issuer) liability is secondary and
conditional whereas the drawee’s (bank) liability is
primary and unconditional.
Formal Requirements of Cheque

(Art 596) a cheque must contain:

▪the term "Cheque" in the body of the instrument.
▪an unconditional order to pay a certain sum of money.
▪ name of the drawee (which should be a bank).
▪ name of the payee (beneficiary to whom the payment
is to be made).
▪ fixed date and place where payment is to be made.
▪ signature of the drawer (account holder).
Negotiability of the Cheque

▪ As a commercial paper, a cheque is transferred by

endorsement, followed by delivery of the instrument to
the endorsee.
▪ If it is written as “Not Negotiable”, it cannot be
transferred.
▪ A cheque made payable "to bearer" is transferred by
delivery of the cheque.
▪ Partial endorsement of cheque is not allowed.
Endorsement of Cheque
 Limitation to Deposit a Cheque

▪ It is not permitted to present a cheque for payment

before the date stated as the date of its issue (Art 617(2)).
▪ A cheque payable in the UAE, whether drawn in or outside
the UAE, must be presented for payment within 6 months
from the date stated as the date of issue.
▪ If the last day of the presentation period is a public or bank
holiday the period is extended until the next working day.
Stop Payment

▪ The bank is bound to honour the cheque, and stop

payment instructions should be disregarded,
except in case of:
o loss of the cheque; or
o bankruptcy of the cheque-holder.
▪ Death, loss of capacity, or bankruptcy of the drawer
after issuing the cheque has no effect on the rights
and obligations arising from the issue of the cheque
in question.
 Dishonoured Cheques

▪ Previously a dishonoured (bounced) cheque was a criminal offence, whereby

the convicted person would face imprisonment in addition to a fine (Art 401
Penal Code).
▪ In Dubai, if the bounced cheque amount is less than 200,000 Dhs, the
punishment may be a fine (between 2,000 – 10,000 dhs).
▪ However, Federal Decree-Law 14/2020 amending certain provisions of CTC,
which came into effect 02/01/2022, has decriminalized cases of bounced
cheques (unless fraud is proven).
▪ If a cheque is not honored due to unavailable or insufficient funds, it
remains an executive document that can be enforced directly by a judge in
civil court.
▪ Partial Payment: if there are insufficient funds in the account, the
beneficiary can partially encash the funds available in the account. The
beneficiary gets to retain the cheque till the complete cheque value is
recovered.
Criminal Offences related to
Cheques under New Regime

▪ forging cheques;
▪ fraud committed by ordering bank to stop
payment on a cheque;
▪ withdrawing the full balance from the account
before the cheque date;
▪ deliberately issuing a cheque or signing it in a
manner that prevents its encashment.
Crossed Cheques and their Purpose

Arts 628 – 631 CTC

▪An open cheque is subject to a great risk in the course of
circulation. Therefore, there is a practice of crossing
cheques.
▪Crossing is to avoid misuse of cheque.
▪Crossed cheque payment must be made into account not
at the counter (cash payment).
▪Crossed cheque must be accepted only from the
customer of the bank.
▪Insertion of expression “account payee” serves similar
function.