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Aspects of Application of Period of Limitation in Promissory Note and Bill of Exchange Matters In recent years, a substantial growth of the bill of exchange and promissory note circulation has been observed in Ukraine. To a considerable extent, this growth was fostered by the expansion and normalization of the regulatory framework for negotiable instruments. In particular, on 6 July 1999 Ukraine's Parliament ratified the Geneva Conventions of 1930; these include: (i) on abiding by the Uniform Law on Bills of Exchange and Promissory Notes (hereinafter, the Uniform Law), (ii) for the Settlement of Certain Conflicts of Laws in Connection with Bills of Exchange and Promissory Notes, and (iii) on the Stamp Laws in Connection with Bills of Exchange and Promissory Notes. On 5 April 2001 the Law of Ukraine on Circulation of Bills of Exchange and Promissory Notes in Ukraine was passed. The Securities and Stock Market State Commission, the National Bank of Ukraine, and the Cabinet of Ministers of Ukraine have been making more active efforts to regulate the bill of exchange and promissory note market. Not striving for a quick and comprehensive elucidation of the problems of the bill of exchange and promissory note circulation, herein I would like to address an important issue of the period of limitation for the bills of exchange and promissory notes. Types of Terms in Ukraine's Civil Law The theory of civil law considers a term as a certain period of time, an expiration of which is linked by law with some legal consequences. According to Article 251 of the Civil Code of Ukraine, dated 16 January 2003, which will take effect on 1 January 2004, "a term shall mean a certain period of time, an expiration of which is linked with an action or an event of legal significance." Depending on the legal consequences or the nature of such consequences, the civil law terms can be classified as: (1) guarantee; (2) claim (or reclamation); (3) the statute of limitations (or limitation of legal actions); and (4) preclusive. A preclusive term is understood as a period of existence of a material right or obligation. As soon as the preclusive term expires, such right or obligation terminates (is barred) and cannot be restored. It should be noted that Ukrainian legislation does not define the "preclusive term." This concept was developed in the theory of civil law to apply to a large group of specific terms because expiration of these terms results in termination (cessation) of the existence of certain material right. Thus, for example, according to Article 194 of the effective Civil Code of Ukraine (hereinafter, the Civil Code), the term of surety expires should the creditor fail to make a claim against the surety within 3 months of maturity of obligation. If, on the other hand, the term of maturity is not specified or is defined by the time of claim, then, in the absence of other agreements, the surety's obligation terminates upon expiration of 1 year from the time when the surety agreement was entered. Preclusive terms are, in fact, sanctions for undue execution of, or failure to execute, rights terminating the civil right itself. Periods of Limitation in the Bill of Exchange and Promissory Note Law One of many peculiarities of the bill of exchange and promissory note law is special periods of limitation applicable exclusively in matters arising from the claim to settle a bill/note. Thus, in case of failure to receive the payment, the bill/noteholder can enforce it through court. This right is restricted by time limits, which, should they be missed, deprive the bill/noteholder from the right to receive satisfaction on the bill/note. The period of time established by legislation for actions to judicially protect the material right of a person arising out of a bill/note is referred to as the period of limitation for a bill/note. The Uniform Law introduced by the Geneva Convention of 1930 (hereinafter, the Geneva Convention), which is Annex I thereto, stipulates 3 types of the period of limitation for actions arising out of a bill/note. These periods are established by Article 70 of the Uniform Law. Firstly, actions arising out of a bill of exchange against the acceptor are barred after 3 years reckoned from the date of maturity. It should be taken into account that this period is applied both with respect to the claim of the billholder and with respect to the claims presented against the acceptor of a bill of exchange by the drawer, endorsers, givers of aval and other persons. The same rule is applied in cases of actions against the maker of a promissory note because, according to Article 78 of the Uniform Law, the maker of a promissory note is bound in the same manner as an acceptor of a bill of exchange. A three-year period commences on the day of maturity as per the terms of the bill of exchange, whether the bill was protested or not. Secondly, actions by the holder against the endorsers and the drawers of a bill of exchange are barred after 1 year from the date of a protest drawn up within proper time or from the date of maturity where there is a stipulation retour sans frais. Thirdly, actions by endorsers against each other and against the drawer are barred after 6 months reckoned from the day when the endorser took up and paid the bill or from the day when he himself was sued. According to Article 34 of the Uniform Law, a bill of exchange (or a promissory note) payable "at sight", must be presented for payment within a year of its date. The holder of a bill of exchange (or a promissory note) payable at a specified date or after the specified time from its date or presentment, must present the bill of exchange (or the promissory note) for payment either on the day when it is to be paid or within the next two business days. Often, while establishing a payment term, drawers prescribe that a bill of exchange may not be presented for payment before a named date ("on presentment but not earlier than... [date]"). In such a case, the period for presentment begins from the specified date. According to Article 77 of the Uniform Law, the provisions relating to bills of exchange apply to promissory notes, including the provisions on the time of payment (Articles 33 to 37 of the Uniform Law), so far as they are not inconsistent with the nature of these instruments. This raises a question regarding legal consequences of delaying beyond the term for presentment of the bill for payment. It is not uncommon that an organization, which holds a bill, having delayed beyond the term for its presentment for payment considers that it has lost its right to claim against the payer as the bill has turned into a "void" paper. Article 53 of the Uniform Law stipulates that after the expiration of the limits of time fixed for the presentment of a bill of exchange drawn "at sight," the holder loses his rights of recourse against the endorsers, against the drawer and against the other parties liable, with the exception of the acceptor. Unfortunately, courts often refuse to support the claims on these grounds. This, however, is not right and fails to take into account other Uniform Law provisions.

 

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