Credit titles are documents that empower their holder to exercise the literal right that is set forth therein. Cesare Vivante defines them as "documents that have incorporated a literal and autonomous right that can be exercised by the legitimate bearer against the debtor on the expiration date".
Like any financial title, it generates a private patrimonial right and, therefore, implies the ownership of an asset. It is a term used in finance to designate a physical document or a book entry.
The credit or security instrument is a debt instrument that could be a government bond, a corporate bond, a certificate of deposit or a preferred stock.
It is a document that can be bought or sold between two parties and has defined basic terms: amount loaned, interest rate, guaranteed values, and expiration and renewal date.
In legal terms, it is a constitutive document, that is, without them there is no right that they imply. They replace, in commercial law, bills of exchange and delegations.
Its origin is related to the edition of the Commercial Law Treaty , in 1896, by the Italian professor Cesare Vivante. In this treatise a General Theory of Credit Securities appears.
Classification of the types of credit instruments
There are several ways to classify these financial instruments and some of them are detailed below.
- According to its content
Payment titles or commercial papers
It refers precisely to the titles that indicate the obligation to pay a specific sum of money, such as: bills of exchange, promissory notes, checks, letters of credit orders and drafts.
Representative titles of merchandise
They are those titles in which the ownership of movable property is transmitted or transferred, in particular merchandise.
They can be: transport contracts such as the bill of lading, the bill of lading or the air waybill or air waybill; or storage contracts or deposit warrants, such as certificates or deposit vouchers.
Social participation titles or transferable securities
One can also speak of social participation titles when they indicate rights such as the quality of partner of the issuer or creditor indicated in the document.
An example of this type of securities is the action of a limited company are the bonds, debentures or promissory notes issued by private limited companies.
- According to the person to whom it is ordered
Bearer securities
It refers to the titles that, effectively, are paid to whoever presents them for payment.
Titles to order
They are the titles issued in the name of a particular person who may or may not transfer them by endorsement.
Nominative titles
The titles that are issued in the name of a person who cannot transfer them by endorsement.
- According to the legal personality of the issuer
Public securities
This classification includes the titles issued by the State or entities that are related to it.
Private credit titles
They are the titles issued by individuals. And they can be of a civil or commercial nature depending on the legal relationship that originates them.
- Depending on how the document is divided or not
Unit titles (a check, for example) and multiple titles (bonds or titles representing public debt).
- According to whether they are caused or not caused
Not caused or abstract
Like the bill of exchange, the promissory note and the check.
Caused
All titles directly linked to the legal relationship that originates them, such as bills of lading or warehousing contracts, for example.
Characteristics of the credit instruments
Some of the characteristics that distinguish credit instruments from other financial and debt instruments are:
Literality
The conditions are respected as they are expressed in the document.
In this way, neither the debtor nor the creditor can demand or receive anything that is not explicitly stated on the paper.
This characteristic is inspired by the "bunk contracts" of Roman law.
Autonomy
This characteristic is due to the fact that each new owner acquires it originally. That is, he is not the successor of the subject who transferred the credit title to him.
In this way, the new holder exercises his own right, different and independent from those of the previous holders of the title.
This means that when a credit title changes hands, owners, the credit right expires and a new one is born.
Thus, vices or defects do not accumulate during the circulation of the document, which is what happened with bills of exchange.
Incorporation
It does not mean anything else but that to exercise the right indicated in the title, its possession, exhibition or delivery is mandatory.
This characteristic originates the term cartular, with which the rights emanating from the securities and the legal norms that regulate them are named.
Legitimacy for possession
Whoever owns the title can legitimately exercise the right that it provides.
Abstraction
It is a characteristic that is due to the fact that, legally, the cause of the debt is not relevant, but the obligation to pay what the document stipulates.
This does not mean that there is no prior negotiation that originates the document, but it does mean that when asserting the right to collect the debt, such negotiation will not be taken into account, but what the title indicates.
Ultimately, the principle of the unenforceability of exceptions is present, according to which the debtor may not file exceptions originated in the business that caused the title.
Formality
The fact that it is a written document that implies literal obligations, gives it a formal character. Such is the case of bills of exchange, promissory note and check.
Advantages of credit instruments
Credit instruments as financial instruments allow the mobilization and circulation of wealth but also have other advantages:
Certainty in the conditions because they imply the obligation to comply with the conditions they reflect.
Speed in the processing of the operation.
Security in the final execution of the title.
