THE GROUNDS ON WHICH AN EXCHANGE OBLIGATION ARISES

A question on which grounds an exchange obligation arises is one of the most controversial ones in the theory of exchange law. Legal literature denotes that "each of the points of view represented in Civil Law on the deed establishing an exchange obligation attracts certain presuppositions in order to explain the problem"¹. So, the discussion on which grounds an exchange obligation arises cannot be considered finished.

Numerous, mainly German, exchange theories devoted to this issue can be divided into contractual and non-contractual. Authors of contractual theories accept an agreement executed between a giver of a bill and a holder of a bill as the grounds on which an exchange obligation arises. Authors of non-contractual theories exclude an agreement as the grounds on which an exchange obligation arises. The date when an exchange obligation arises is also interpreted differently by different theories. Some of them consider that it arises as soon as the document is created while others consider after the document is issued or accepted.

In Russian legal literature exchange theories were most fully studied in the work by V. D. Katkov "A General Exchange Theory: A Legal Study"². This article discusses only theories that have been mostly developed under Civil Law and are still in use.

Among non-contractual theories the creation theory (Kreationstheorie) by Kuntze should be mentioned first. In accordance with the creation theory, an exchange obligation arises by virtue of the mere fact of unilateral creation of an exchange document. It is considered that an exchange obligation arises from the date of signing a bill³.

G. F. Shershenevich noted that the creation theory gives a perfect explanation why a giver of a bill should pay a bona fide holder of a bill which was drawn without his consent or even against his will. It also explains that the rights of subsequent billholders are independent from the rights of their predecessors⁴. V. A. Belov believes that the creation theory is the only one that can explain the legal nature of endorsement⁵.

However, when it is considered that an exchange obligation starts from the date of drawing a bill, one should admit that an obligation may exist without the corresponding right to it. With regard to this, P. J. Drobyshev indicates that "for a certain time (before a creditor accedes to the obligation) the legal exchange relationship is incomplete without its second party and interlocked in itself"⁶. However, he has to admit that "strictly speaking, it is not a legal relationship at all but the mere intent of a giver of a bill to take on an obligation for the bill which expects the appearance of a bona fide and properly legitimated bill creditor"⁷. The obligation arises from the date of drawing a bill and lasts until the bill is issued and is characterized as "incomplete and requiring completion by passing the bill to the first billholder"⁸.

t is difficult to agree with the aforesaid conclusions of the advocates of the creation theory. The obligation is not likely to be considered "incomplete". As it was pointed out by V. D. Katkov, "either the bill invokes the obligation from the date of its creation (Kreation), and then it is not possible to speak about it as about something incomplete and only intended. Alternatively, the obligation arises from the date of acceptance (Nehmung) of the drawn bill by the first acquirer, and then a mere creation (Kreation) of the bill does not invoke any obligation yet"⁹. We can not agree with V. A. Belov's point of view who suggests that the question about who is a creditor for a drawn but not issued yet bill is "rather a theoretical one, and that is why it can not be considered as a serious counter-argument against the bill creation theory"¹⁰.

Moreover, the creation theory, which totally neglects the interests of a bill debtor, does not comply with the existing legislation of the Russian Federation, which admits objections to a mala fide billholder (Article 17 of the Provision on a bill of exchange and a promissory note)¹¹.

The emission theory, in accordance with which an exchange obligation also arises by virtue of a unilateral act of a party that accepts the obligation, originated on the basis of the creation theory. But the emission theory understands that such a unilateral act can be not only the creation of a bill but also an intended issuance of a bill by a promisor. The emission theory does not require that a person who can be a creditor for the bill should accept it. The exchange obligation arises only by virtue of issuance or emission of the bill and only at the moment when the bill is issued.

As it was already mentioned, an obligation cannot arise and exist by itself without a corresponding right to it. That is why we cannot agree with the conclusions of the emission theory which neglects the fact of acquiring a bill when an exchange option arises. A mere fact of issuance is not enough for the obligation to arise. The fact of issuance must be supplemented by another fact - acquisition of the bill. Thus, one should agree with V. D. Katkov who noted that "if you study the emission theory, it will turn out that it is not the emission that bases obligations"¹².

From a practical point of view, it should be noted that the emission theory under no circumstances allows an exchange obligation to arise without consent of a promisor expressed in the act of issuing a bill. In the aforesaid part, the emission theory directly contradicts existing legislation (Articles 16, 17 of the Provision on a bill of exchange and a promissory note).

The question when an exchange obligation arises is treated differently in Grunhut's "honesty theory" (Redlichkeitstheorie). The only required condition for an exchange obligation to arise is bona fide acquisition of a bill. The "honesty theory" rejects the necessity of the promisor's will to issue a bill. Thus, bona fide acquisition of a bill may invoke an exchange obligation even when the bill was lost by a promisor, stolen from him or otherwise left his hands without his consent.

A flaw of Grunhut's theory is that from all the legal facts that take place when an exchange obligation arises, this theory deliberately singles out only two of them: drawing up a bill and its bona fide acquisition. Ignoring other legal facts that take place when an exchange obligation arises, Grunhut's theory does not explain the legal nature concerning when a legal obligation arises. Drawing up a bill and its bona fide acquisition always take place when an exchange obligation arises, but only in exclusive cases does an exchange obligation arise only by virtue of these two legal facts against the will of a promisor. Additionally, an exchange obligation can arise by virtue of just these two legal facts only with regard to subsequent acquirers¹³. It is almost impossible to speak about bona fide acquisition of a bill by the first acquirer if the bill was not willfully issued to him by a promisor. In most cases, when an exchange obligation arises and in all cases when such an obligation arises to the first acquirer, the will of a promisor to issue the bill, which is neglected by Grunhut's theory, is also important. Given that both a promisor and a bill acquirer have the aforesaid will, we can speak about the concurrent will of two parties, or an agreement.

The grounds on which an exchange obligation arises are explained differently by contractual theories which consider that for an exchange obligation to arise, the agreed will of a giver and an acquirer of a bill are necessary. Among contractual theories Tel's Vertragstheorie should be named first. According to Tel, an exchange obligation is a promise of a monetary sum independent from other grounds and established by issuance and acceptance of a bill, on the basis of which an agreement on taking an exchange obligation by a promisor is executed.

Tel's contractual theory denies that an exchange obligation can arise either against the will of a promisor or the will of a billholder. Thus, an exchange obligation is always either based on an agreement or does not exist at all. With regard to a bill, Tel singles out three agreements: 1) between a promisor and a billholder, 2) between an endorsee and a billholder, 3) between an acceptor and a bearer. We should note evident incorrectness of the latter assumption. Generally speaking, we should rather agree with V. D. Katkov who described Tel's theory as one which does not embrace the whole truth but which approaches close to it¹⁴.

owever, Tel's theory has a number of evident flaws. When explaining the legal nature of a bill and limiting the parties only to a promisor, a bill acquirer and a bill acceptor, a contractual theory in its pure form faces insurmountable difficulties as soon as it enters the exchange relations of endorsees. Tel's theory denies that an exchange obligation can arise outside an agreement executed between a promisor and the first billholder through issuance and acceptance of a bill. In the aforesaid part, the contractual theory contradicts existing legislation which stipulates the obligation of a promisor to pay a bill presented by a bona fide billholder disregarding how the bill was put into circulation. In addition, the contractual theory cannot explain that the rights of subsequent billholders are independent from the rights of their predecessors.

An Italian researcher Vivante, whose theory is devoted not only to bills but securities in general, made an attempt to overcome the aforementioned contradictions of the contractual theory. Vivante assumes that while the relations between a promisor and the first billholder are determined by an agreement executed by them, the relations between a debtor and subsequent acquirers are determined by the unilateral will of a promisor, which is a separate legal enforceable fact expressed in the document¹⁵. With regard to this, it is only a holder, who acquired a bill in an appropriate way, that can base his rights on such a unilateral will. In this case, as M. M. Agarkov points out, it is more prudent to speak about a holder who is legitimatized by a method specific for a bill¹⁶. We should note that before Vivante, the structure of divided will of a promisor was used by Goldsmidt in his ownership theory, in which the aforesaid divided will was determined by an agreement with the first acquirer.

According to M. M. Agarkav, a flaw of Vivante's theory lies in that it artificially singles out one of the elements characterizing securities (public authenticity) and does not take into consideration the entire range of legal relationships that can arise in connection with this instrument¹⁷. Moreover, all the objections mentioned with regard to the creation theory discussed above are applicable to Vivante's theory which bases the rights of subsequent billholders on the unilateral will of the promisor.

Jacobi's Rechtsscheintheorie, which was critically studied by M. M. Agarkov along with Vivante's theory, is also very interesting¹⁸. According to Jacobi, the legal system which regulates legal relationships arising in the course of emission and circulation of securities, considers the pretence of a right (Rechtsschein) and a genuine, existing right applicable to bona fide third parties equal. The liability of an executor of a security, who made Rechtsschein possible and in whom a bona fide third party placed confidence, is based on infliction. However, the aforesaid liability is not expressed in indemnification but in imposition of the same liability on the executor of a security as if it were put into normal circulation.

It is not surprising that Rechtsscheintheorie, which bases its conclusions on numerous but still local cases of defending interests of bona fide third parties and uses them as a basis for legal order, gives rise to fair criticism. We should rather agree with M. M. Agarkov's statement that "legal order exists for regulation of relationships based on facts that really took place and accepted as the basis of origination, termination or change of legal relationships. The world of ghosts is incompatible with business turnover, requirements of business practices and real life¹⁹. However, the Rechtsscheintheorie's conclusions can be applied to explain why a promisor should be liable before a bona fide billholder who has acquired from a third party a bill which left the hands of the promisor against his will. We are speaking about the part of the theory in which drawing up a bill that provides for the liability of a promisor is considered not as a unilateral deed but as an act which does not include the will of an executor to take on liability for the bill. Thus, this cannot be classified as a deed but which still evokes an exchange obligation under certain conditions.

Summing up the discussion regarding the grounds on which an exchange obligation arises, we can reach a conclusion that an exchange obligation can arise under two different bases. In most cases and always with regard to the first acquirer, an exchange obligation arises on the basis of an agreement between a giver of a bill and the first billholder executed through issuance and acceptance of a bill. The will of a giver of a bill expressed in the act of issuing a bill encounters the will of a billholder expressed in the act of accepting the bill. As a result, the concurrent will of two parties, a promisor and a billholder, arises, which makes it possible to speak about an agreement as grounds on which an exchange obligation arises that can be classified as a real contract since certain actions are necessary in order to execute it. The rights of subsequent billholders are based on an agreement with their predecessors executed through transferring a bill in an appropriate way. The independence of the rights of subsequent billholders from the rights of their predecessors should be explained imperatively by the public authenticity of the bill stipulated by existing legislation. We should note that the Regulation issued by the RF HRC N^o 305/96 dated April 2, 1996 enables us to conclude that the RF Highest Arbitration Court, which classifies the relationships formed in the course of issuing a bill as an agreement, also thinks that it is an agreement that is the grounds on which an exchange obligation arises²⁰.

However, in some exclusive cases and only with regard to subsequent bona fide billholders, it is admitted that an exchange obligation can arise without the consent of a billholder. In the aforesaid cases, an exchange obligation arises by virtue of the bona fide acquisition of a properly drawn bill at the moment of acquisition of the bill, which allows us to speak about the compliance with the legislation in the mentioned cases of Grunhut's Redlichkeitstheorie. Drawing up a bill should be considered not as a unilateral deed but as a different act which does not include the will of the bill executor to be liable for the bill (Jacobi's Rechtsscheintheorie). Thus, drawing up a bill and its bona fide acquisition represents a necessary and adequate set of legal facts with which existing legislation links the origination of an exchange obligation of a promisor before subsequent billholders. Since in the aforesaid cases the law provides protection for bona fide third parties' interests at the expense of the promisor's interests, an exchange obligation cannot be explained otherwise than by the interests of circulation. The fact that an exchange obligation can arise without the consent of a promisor stipulated in articles 16 and 17 of the Regulation on a bill of exchange and a promissory note should be considered as a legislative "compromise between the strength of circulation and the strength of right"²¹.

¹ P. J. Drobyshev. A Bill in Commercial Circulation. Master of Law Dissertation. St. Petersburg, 1996. p.81.
² V. D. Katkov. A General Exhange Theory. Kharkov, 1904.
³ The basic provisions of the creation, emission and contract theories, Grunhut's and Goldsmidt's theories are quoted in the book: V. D. Katkov. Ibidem p.9-119; G. F. Shershenevich. A Course of Commercial Law. vol.3. St. Petersburg, 1909. p.29-35.
⁴ G. F. Shershenevich. A Course of Commercial Law. vol.3. St. Petersburg, 1909. p.32.
⁵ V. A. Belov. The Russian Exchange Law. Moscow, 1996. p.39.
⁶ P. J. Drobyshev. Ibidem, p.81-82.
⁷ Ibidem
⁸ Ibidem. p.62.
⁹ V. D. Katkov. Ibidem. p.55.
¹⁰ V. A. Belov. Ibidem. p.39.
¹¹ Regulation issued by CEC and CPC of the USSR dated August,7 1937 N^o104/1341 (CL USSR, 1937, N^o52, p.221).
¹² V. D. Katkov. Ibidem. p.65.
¹³ One should agree with the conclusions made by Grunhut regarding such exclusive events, which will be considered below, when a exchange obligation arose against the will of the promisor.
¹⁴ V. D. Katkov. Ibidem. p.89.
¹⁵ Basic provisions of Vivante and Jacobi's theories are quoted in the book: M. M. Agarkov. The Basics of Banking Law. Theory of Securities. Moscow: Bek, 1994. pp.213-222.
¹⁶ M. M. Agarkov. Ibidem. p.248
¹⁷ Ibidem. p.250.
¹⁸ Ibidem. pp.217-222
¹⁹ M. M. Agarkov. Ibidem. p.220.
²⁰ RF High Arbitration Court Gazette N^o 7/96, pp. 62-65.
²¹ M. M. Agarkov. Ibidem. p.220.