——Hubei Jiangyao Machinery Co., Ltd. vs. Beijing Aerospace Xinli Technology Co., Ltd. for a Dispute over Negotiable Instrument Recourse

[Principle of Adjudication]

The exercise of the right of dishonor recourse shall be based on the right to claim for payment. Making a presentation for payment before the matured date by the holder of the electronic commercial draft shall not give rise to the effect of dishonor recourse on the debtors of the negotiable instrument, except for the drawer and the acceptor.

[Implications]

The development of electronic commercial drafts is rapid, and disputes over electronic commercial drafts are also on the rise. As to the effect of making a presentation for payment by the holder before matured date, there exist particularly prominent controversies in practice. The typical significance of this case is to clarify the effectiveness of making a presentation for payment before matured date under different circumstances of dishonor recourse and non-dishonor recourse. In case of non-dishonor recourse circumstances such as bankruptcy of the drawer, which are similar to situations for the defense of anticipatory breach in contract, the holder is entitled to make a presentation for payment before the matured date, which helps to protect the interests of the holder and maintain the negotiability and abstractness of the negotiable instrument. Different from non-dishonor recourse, under the circumstances of dishonor recourse, if the debtors of the negotiable instrument do not voluntarily give up the benefit of the time limit and do not ratify the effect of making a presentation for payment before the matured date, the act of making a presentation for payment before the matured date should be denied to have the positive effect of making a presentation for payment, and does not give rise to the effect of dishonor recourse on the debtors of the negotiable instrument, except for the drawer and the acceptor, so as to maintain the abstractness and form requirements of the negotiable instrument, which are the basis for negotiable instrument circulation, and to safeguard draft’s negotiability and predictability.

[Basic Facts]

On June 27, 2019, Hubei Jiangyao Company, as the last holder of the negotiable instrument, presented the negotiable instrument for payment one day before its matured date. Status of the negotiable instrument showed: presentation for payment to be signed for receipt. The company immediately sued Beijing Aerospace Xinli Technology Co., Ltd., the endorser preceding it of the negotiable instrument, for payment of the outstanding amount and interest of the negotiable instrument on the ground of refusal of payment. The focus of the dispute between the parties lies in whether making presentation for payment before matured date has the effect of presentation for payment, and whether “presentation for payment to be signed for receipt” shall be deemed as dishonor by the acceptor. The first-instance court supported the position of having the right of recourse on the ground that “presentation for payment to be signed for receipt” was continuous in status, thus supporting all claims of Hubei Jiangyao Company. The second-instance court holds making presentation for payment before the matured date in dishonor recourse does not give rise to the effect of dishonor recourse, and changed the judgment to dismiss all claims of Hubei Jiangyao Company.

[Judge Comments]

Compared with paper bills, electronic commercial drafts have many conveniences and are highly recognized by market players. Affected by the recurrent epidemic and economic downward pressure, enterprises as the drawers cannot honor amount in negotiable instrument due to various reasons, triggering a series of social contradictions, and the risks in the field of the electronic commercial draft has increased to some extent and transformed into litigation disputes. In this case, the judge focused on how to prevent the risk in an individual case from spilling over into local risks, balance the interests of the holder and the debtors of the negotiable instrument, maintain the negotiability and predictability of the instrument, and promote the healthy development of electronic commercial draft payment. The judge retrieved similar cases’ rulings in recent years as well as relevant typical cases of the Supreme People’s Court, gave full play to the advantages of the experts and think tanks of the Beijing Financial Court, and listened to the relevant opinions and suggestions of industry experts and made the ruling for this case by taking into account the Processing Procedures for the Electronic Commercial Draft Business and other relevant industry standards.

[Expert Comments]

Expert: Liu Yan, Professor, Law School, Peking University

The characteristic of form reequipment of negotiable instruments become more prominent in the era of electronic negotiable instruments, which is mainly reflected in the subtle differences between the Measures for the Administration of Electronic Commercial Draft Business issued by the People’s Bank of China and the Law on Negotiable Instruments, such as the great difference between the legal consequences of “making presentation for payment before the matured date” and “making presentation for acceptance before the matured date” involved in this case. Users of electronic negotiable instruments must be aware of these, otherwise, one false step will make a great difference.

In this case, the judge distinguishes two circumstances of dishonor recourse and non-dishonor recourse in order to balance the interests of the holder and the debtors of the instrument. In case of non-dishonor recourse circumstances such as bankruptcy of the drawer, the holder is under a situation similar to those giving rise to the defense of anticipatory breach in contract, therefore acknowledging the effect of making presentation for payment before the matured date has better support in legal theories. However, in a circumstance of dishonor recourse, to acknowledge the act effect of making presentation for payment before the matured date and accordingly give rise to the effect of dishonor recourse is not fair to the instrument party against whom the recourse is sought, frustrates the predictability of the instrument and is not conducive to maintaining the order of circulation of negotiable instruments. The reasoning in this case has certain reference significance for the settlement of disputes in current practice.