Credit instruments have played a pivotal role in the evolution of financial transactions, emerging from the need to facilitate credit operations and ensure secure promises of future payments. This article delves into the historical origins of credit instruments, their legal implications, and the theories that govern their use today.
This need for the circulation of currency gave rise to the first notion of the existence of credit, which corresponds to an amount to be paid, owed by someone. However, from the beginning, a problem related to the circulation of credit rights was evident, a problem that was only truly solved with the appearance of credit instruments.
In Roman Law, it was difficult to circulate capital through credit, where the obligation constituted a personal bond between the creditor and the debtor, and the creditor could not collect the debt through the debtor’s assets. The collection, established in the Law of the Twelve Tables, consisted of either killing the debtor or selling him as a slave.
Later, using the Lex Papiria, the debtor’s assets took the place of his personal and corporal guarantee, transferring credit through assignment while adhering to established procedures.
In the Middle Ages, credit instruments began to emerge with some of the characteristics they possess today. The incident that gave rise was the need to protect the creditor, the debtor, and their respective assets, not merely a simple procedure aimed solely at solving a legal problem of capital circulation.
It was in the Middle Ages that documents and papers started to appear that consolidated the credit rights of their holders and the obligations of their issuers. This marked the beginning of what we know today as the rights and duties between creditors and debtors. Over time, the first notions of endorsement also appeared, as the need arose to transfer that right to a third party who could later benefit from that payment promise.
The clause known today as “to order” was a significant milestone for the circulation of credit instruments among different peoples. This circulation allowed for the refinement of the validity rules of a title, making its existence “erga omnes” (valid against all).
Thus, the Middle Ages and the rise of commerce were the precursors of the birth of credit instruments. Over time, the need for improvement and advances in legislation shaped what we now know as credit instruments.
THEORIES OF CREDIT INSTRUMENTS
The most important theory related to credit instruments is Vivante’s Theory (Cesare Vivante), which supports the dual sense of will. Through his theory, Vivante sought to explain the debtor’s intent when delivering the title, suggesting that there are two wills: “one originating from a personal relationship with the main creditor and another that is realized through the free circulation of credit. Thus, regarding the main creditor, there is a contractual relationship, and regarding third-party holders, there is an obligation of the signature, as it expresses the will to commit through this act.” [1]
Other important theories that generate debate include the Theory of Creation and the Theory of Issuance. The former states that the right arises from the creation of the title through signature, while the latter holds that the right arises from the voluntary issuance of the title. Brazilian law has not adopted either theory, instead seeking to merge important points from both.
The Theory of Creation is reflected in Article 1506 of the Civil Code: “The issuer’s obligation subsists even if the title has entered into circulation against his will,” while the Theory of Issuance is found in Article 1509 of the same statute: “A person unjustly dispossessed of bearer instruments may only prevent payment to the illegitimate holder through judicial intervention.”
Some theoretical analyses of the terms “Credit” and “Title” are made separately to explain why these two words are combined to form a document with monetary value.
“Credit” is an economic phenomenon involving an act of trust between the creditor and the debtor. One’s credit is another’s debt. Installment sales and loans constitute its two essential forms.
The word “Title,” in turn, has Latin origins. The word “títulus” means inscription or text that gives identity or qualification to an object, fact, or person.
Two basic interpretations apply to the word title. The first is in its strict sense, directly related to the physical expression of a text that adheres to an object or person. The second, in a broader sense (latu), is capable of giving identity or qualifying an object, fact, or person, labeling them, as those that mark the existence of facts with legal consequences. For example, someone who holds ownership over movable or immovable property is entitled to a property right. Similarly, in a legal obligation, the party in the active position is titled the creditor, and the party in the passive position is titled the debtor or obligor.
All these theories and analyses aim to demonstrate that Credit Instruments arose from the historical need for the circulation of money, the protection of the debtor’s assets, and ensuring the creditor’s payment. Furthermore, it is certain that the issuance of a Credit Instrument stems from trust between the parties, as it requires a guarantee from the issuer. The form of the document also has historical origins, as the “word of honor” promise became inadequate for commercial advancement. Thus, the evolution of Credit Instruments can be traced to commercial advancements throughout history.
DEFINITION OF CREDIT INSTRUMENTS
The expression credit instrument approaches the strict sense of the word title. A title is a document, that is, the legal inscription, materially written on a paper, representing a credit or debt. A credit instrument is not a mere document but a tool that represents a credit or debt.
The document is the genus, and the instrument is the species. A document should be understood as something that records any legal fact, such as a signed declaration or a copy, which can serve as proof, according to Article 225 of the Civil Code.
An instrument, however, constitutes a document specifically created to serve as proof of an act.
According to Vivante, “a credit instrument is a document necessary for the exercise of the literal and autonomous right mentioned therein,” which coincides with the definition adopted in Article 887 of the Civil Code: “A credit instrument is a document necessary for the exercise of the literal and autonomous right it contains, and it only produces effects when it fulfills the legal requirements.” [2]
A credit instrument must meet the legal requirements to be valid, adhering to the rules governing Negotiable Instruments Law, and in accordance with Item III of Article 104 of the Civil Code.
Not every piece of paper with a debtor’s obligation written on it is a credit instrument, according to Waldirio Bulgarelli. He says, “Unlike common handwritten documents, which are only probative, credit instruments consist of a right distinct from their cause. For this reason, the rules governing them, collectively known as negotiable instruments law, are specific and, in some cases, even deviate from common law.” The reason for this is that, in contrast to the credit rights represented by ordinary documents, this right must circulate with agility and ease in order to ensure security and certainty. [3]
ESSENTIAL CHARACTERISTICS OF CREDIT INSTRUMENTS
From Vivante’s definition of credit instruments, there are three basic characteristics or principles:
LITERALITY
A credit instrument is considered literal because its existence is regulated by the content it contains, meaning that only what is written in the document is considered. Therefore, any other obligation, even if included in a separate document, is not integrated into it, thus producing legal effects only from the acts stated in the credit instrument.
AUTONOMY
Negotiable instruments law dictates the autonomy of the obligations established in the credit instrument, which constitutes an independent declaration from the debtor, committing to pay the obligations set forth. This autonomy does not apply to the cause of such obligations but to third parties in good faith, who hold their own rights that cannot be denied due to the relationships between previous holders and the debtor.
DOCUMENTATION (CARTULARITY)
A credit instrument is necessary for the exercise of the literal and autonomous right it represents. Thus, it materializes in a document, and only the holder of the original document is considered the legitimate possessor of the credit right and can demand the fulfillment of the obligations stated in the instrument. The presentation of the document is required for the exercise of the credit right.
Some characteristics are considered complementary to the above. These include:
CIRCULARITY
Once the instrument represents the credit, it enables its circulation through the document. The document’s holder has a credit that the instrument represents, and he or she may transfer it to another party to pay an obligation. For this reason, credit instruments are also called negotiable instruments, with one of their features being negotiability (from the Latin “cambiare” = change, exchange, barter). It serves the purpose of proving the existence of a legal relationship of debt and credit, as well as enabling the circulation of this credit, changing the holder of the active subject.
ENFORCEABILITY
As proof of the credit, the credit instrument allows the creditor to enforce it. If the obligations established therein are not fulfilled, it enables the holder to use the enforcement process, with the advantages provided in Article 585 of the Code of Civil Procedure, which, in principle, has a more expedited procedure.
ABSTRACTION
This is a subprinciple of autonomy, as the credit instrument, when in circulation, is detached from the fundamental relationship that originated it. It is important to note that, between the parties involved in the original transaction, the instrument does not become detached. Thus, abstraction only occurs when the instrument is placed in circulation.
[1] VIVANTE, Cesare, Institutions of Commercial Law, 1st Ed., São Paulo, Minelli Publishing, 2006.
[2] VIVANTE, Cesare, Institutions of Commercial Law, 1st Ed., São Paulo, Minelli Publishing, 2006.
[3] BULGARELLI, Waldirio; *Credit
