Commercial Papers in Saudi Law

Definition:
Commercial papers are written instruments that follow specific formal requirements as defined by law. They are negotiable through commercial means and represent a right to a sum of money. By custom, they are accepted as a method for settling debts, similar to cash.

Commercial Papers (Exhaustive List):

1. Bill of Exchange :
   An unconditional order to pay a specified sum of money, indicating the time and place of payment.
2. Promissory Note :
   An unconditional promise to pay a specified sum of money, with the time and place of payment specified.
3. Cheque :
   An unconditional order to pay a specified amount of money, indicating only the place of payment.

Key Provisions on the Bill of Exchange under Saudi Law:

• The obligations arising from the signatures of minors who are not merchants or of those lacking legal capacity are null and void with respect to them only. They may raise this nullity even against a bona fide holder of the bill.
• If the bill contains signatures of persons lacking legal capacity or forged signatures, the obligations of other valid signatories remain binding.
• A bill of exchange may be transferred by endorsement .
• If the bill is payable a certain time after sight, it must be presented for acceptance within one year from the date of issue.
• If the place of payment is not indicated, it is considered to be the place indicated next to the name of the drawee.

Common Provisions for the Bill of Exchange and Promissory Note:

• Both serve as instruments of payment and guarantee.
• If either instrument lacks a maturity date, it is deemed payable on demand.
  If the place of issuance is not mentioned, it is considered to be the place stated next to the name of the issuer.
• The Law of Commercial Papers applies certain rules of the bill of exchange to the promissory note, insofar as they do not conflict with its nature, including:
  • Provisions concerning:
    • Payment at the domicile of a third party or at a place other than the drawee’s domicile
    • Differences in stated amounts
    • Nullity of interest clauses
    • Legal capacity to contract
    • Consequences of unauthorized or forged signatures
  • Rules on endorsement and aval (guarantee), noting that if the guaranteed party is not named in the guarantee, it is presumed to be the issuer.
  • Provisions related to:
    • Maturity, payment, opposition to payment, protest, recourse for non-payment
    • Prohibition of grace periods for payment
    • Time calculations and working days
    • Recourse bill, precautionary attachment
    • Intervention for payment, duplicates and copies, alterations, negligence by the holder, and statute of limitations

Key Provisions on Cheques under Saudi Law:

• Cheques issued in the Kingdom and payable therein may only be drawn on a bank.
• A cheque must not be issued unless the drawer has available funds at the drawee bank at the time of issuance.
• A cheque is payable on presentation, and any statement to the contrary shall be void.
• A cheque drawn within the Kingdom and payable therein must be presented within one month.
  If drawn outside the Kingdom but payable within, it must be presented within three months.

References:

These provisions are based on the Saudi Law of Commercial Papers , originally issued by Royal Decree No. 37 dated 11/10/1383 AH and its relevant amendments. The law is enforceable by Saudi commercial courts and supplemented by judicial interpretations.

For the full legal text in Arabic and official interpretations, refer to:

• Saudi Laws Database – Bureau of Experts at the Council of Ministers
• Ministry of Commerce – Saudi Arabia