The Autonomy of the Obligation under a Commercial Paper vis. the Immediate Debtor: A New Perspective under Jordanian Law Compared with English Law
Dr. Mohamed Hussain Bashayrah
Dean and Associate Professor of Commercial Law – College of Law – Prince Mohammad Bin Fahd University – Al Khobar – KSA
Abstract:
It is a settled principle that the obligation under a commercial paper is independent from the underlying legal relationship. This is manifested when the holder has recourse against the debtors other than the immediate one, as the holder receives the paper free from the defects of the underlying relationship between previous debtors. The obligation under a commercial paper is thus autonomous.
However, commentators and decisions of the Jordanian court of cassation indicate that in respect of an immediate debtor, e.g. the drawer vis. immediate payee or the endorser vis. the endorsee, the holder is subject to defenses arising from the underlying relationship. This article seeks to demonstrate that an obligation under a commercial paper is autonomous even between the immediate parties. It is argued here that the autonomy of that obligation is consistent with the provisions of the Jordanian Code of Commerce of 1960 and that the decisions of the Jordanian court of cassation can be interpreted and, in case of apparent inconsistency in decisions, they can be reconciled accordingly.
The autonomy of the obligation under a commercial paper is subject to certain exceptions, since it is conditional upon the good faith of the holder or payee. It is argued that the adopting the autonomy of the obligation under the commercial paper as a general rule leads to a coherent theory of the nature of the obligations under the paper in respect of the payee or endorsee. It also harmonizes with the function of a commercial paper in providing credit to the payee in that the drawer accepts litigation risks if the underlying relationship is contested, whereas drawer and payee are both acting in good faith. The approach of the Jordanian Code of Commerce is compared to the English Bills of Exchange Act of 1882, which treats the immediate payee and endorsee in different ways.
Keywords: Autonomous obligation; holder in due course; Credit; Commercial papers.