Brazil: Bearer Instruments and the New Civil Code

Last Updated: 19 September 2002
Article by Walter Stuber

Law nº 10406, of January 10, 2002, which introduces the new Brazilian Civil Code to be effective early next year (as of January 11, 2003), once again includes in our legal system the possibility of bearer instruments being issued, so long as the transaction is duly authorized by special law1.

Like the old Civil Code (Law nº 3071, of January 1, 1916), the new Code also allows three kinds of instruments:

  1. bearer instruments, transferable by simply handing them over (physically) to the other party. This kind of instruments does not contain the name of the beneficiary, be it because it has the word "bearer" on them or because the name of the beneficiary or borrower (holders) of such instruments is not indicated;
  2. instruments made to the order of, wherein the beneficiary, whose name is expressly indicated therein, transfers them by means of endorsement that can be blank (beneficiary not expressly identified) or nominal (beneficiary is expressly identified). The endorsement transfers are completed with the delivery of the instruments; and
  3. nominal instruments, issued in favor of a person whose name is found in the issuer’s corresponding records. Nominal instruments are transferable by means of a recording on the relevant book, signed by both the owner and the buyer. Nominal instruments may also be transferred by endorsement containing the endorsee’s name, the corresponding recording on book being necessary for the effectiveness of the transfer.

Issuance of bearer instruments, allowed in the old Code, was expressly forbidden in 1990 by the Fernando Collor’s Administration that required the identification of taxpayers for tax purposes. Since the enactment of Law nº 8021 on April 12 1990, payment or redemption of instruments or investment, as well as their gains and yields, to unidentified beneficiary has been forbidden2, being allowed only the writing, payment and clearance of bearer checks of or lower than R$ 100,003. That law also establishes that every share issued by corporations must be nominal4 as well.

Additionally and subsequently, Law nº 8088, of October 31, 1990, set forth that all instruments ought to be issued in the nominal form, being transferable by nominal endorsement only. That made unenforceable every debt supported on irregular instruments. For the purpose of Law nº 8088/1990, "irregular instruments" include bearer and blank nominal, endorsable instruments, lacking identification of the respective beneficiary5. Since there has been no change in the law, such rules remain unaltered and valid to date. However, this is not the consensus understanding among the few commentators who debated the matter.

When examining the new Code, Congressman Ricardo Fiuza6, reporter of the Bill for the new Civil Code, comments as follows: "The new Civil Code reintroduces the bearer instruments. That because Law n. 8021/90 (art. 2) extinguished this kind of instrument, including corporations issued stock, under the pretext that taxpayers should be identified for tax purposes. Except as otherwise provided under special legislation governing each type of instrument, all instruments may, as of now, be issued as bearer, Law n. 8021/90 being revoked in that regard."

Sílvio de Salvo Venosa7, who revised and updated its work in light of the new Civil Code, says: "The Brazilian legislation allows the existence of countless bearer instruments, such as government instruments, lottery tickets, etc. If the law does not specify a certain form, bearer instruments may have a free form. The difference of bearer instruments lies in the manifestation of the unilateral will. Pursuant to art. 907 of the new Code, bearer instruments issued without legal authorization are forbidden. Such prohibition was already contemplated in the previous Code, as far as cash obligations (art. 1.511) were concerned. The Law may prohibit that certain credit instruments are made bearer. Please note that instruments may be issued incomplete or blank, but must be filled in upon presentation."

Still regarding the 1916 Code 1916, Venosa says: "See, for instance, theater tickets or lottery tickets, which entitles those who bear them to a credit. The free form applies mostly to goods and service instruments. In order for instruments for cash payment to be issued, a legal authorization is necessary, subject to nullity (art. 1511 of the 1916 Code)."

On the other hand, Fernando Netto Boiteux8, states the following: "Another unique aspect brought by the new Civil Code is the return to bearer instruments, but such a change will not operate automatically, since, pursuant to art. 907:

"bearer instruments issued without authorization of special law are null".

Therefore, the new Civil Code actually provides the possibility that lawmakers may change the system in force so as to allow, by means of proper law, the return of bearer checks or other bearer instruments."

Well, we espouse this last construction. In our view, the issuance of bearer instruments was banned from the Brazilian legal system by Laws nº 8021/1990 and no. 8088/1990, which are still in full force and remain unaltered. The new Civil Code actually, and simply, provides the return of a possibility that lawmakers may change the system in force to allow bearer instruments to be issued again in Brazil. However, such a theory could only be confirmed with the enactment of special law, which is yet to occur. While no law exists specifically authorizing bearer instruments, bearer checks are allowed only if made to amount equal to or lower than R$ 100,00. Any checks for amounts exceeding that amount must contain the names of their beneficiaries.

In conclusion, therefore, except for checks for up to R$ 100,00, all other instruments issued in our Country, that are governed by the Brazilian law and enforceable within the Brazilian Territory must mandatorily be made nominal. In the future, the Brazilian Congress may approve special law authorizing the issuance of bearer instruments, as provided in the new Civil Code.

1 Art. 907 of the new Civil Code provides as follows:

"Art. 907. Any bearer instrument without authorization of special law is null."

2 Indeed, art. 1 of Law nº 8021, of April 12, 1990, that makes provisions on the identification of taxpayers for tax purposes, and else, establishes the following:

"Art. 1. As of the effectiveness hereof, no payment or redemption of instruments or investment, as well as their gains and yields, to unidentified beneficiary is allowed.

Sole paragraph. Failure to comply with the provisions in this article shall result in the imposition of penalty of same value as the transaction, monetarily restated as of the date of transaction to the effective date of payment."

3 Art. 2 of Law nº 8021/1990 provides as follows:

"Art. 2. Effective on the date of publication hereof, the following are forbidden:

I – issuance of bearer or nominal, endorsable quotas, by funds in condominiums;

II – issuance of instruments and raising of bearer or nominal, endorsable deposits or investments;

III – writing of checks for amount equal to one hundred Brazilian Treasury Bonds (BTN) in the issuance month, lacking proper identification of the beneficiary thereof.

Sole paragraph. Checks issued in disagreement with item III of this article shall not be cleared within the Official Clearance System."

However, item III of art. 2 of Law nº 8021/1990 was revoked by art. 83 of Law nº 9069, of June 29, 1995, that makes provisions on the Real Plan, Brazilian Monetary System, creates rules and conditions regarding the legal tender and criteria for conversion of obligations for the Real, and others. Art. 69, a Law nº 9069/1995 sets forth as follows:

"Art. 69. As of July 1, 1994, it is expressly forbidden the writing, payment or clearance of checks for amounts exceeding one hundred reais (R$ 100,00) that lack proper identification of beneficiary.

Sole paragraph. The Brazilian Monetary Council shall issue rules to govern the provisions in this article."

4 Pursuant to art. 20 of Law nº 6404, of December 15, 1976 (Corporation Law), as amended by Law nº 8021, of April 12, 1990, stock must be nominative. Presently, therefore, corporations are no longer authorized to issue bearer or endorsable stock.

5 Under the terms of art. 19 of Law nº 8088, of October 31, 1990, that makes provisions on the restatement of Brazilian Treasury Bonds and savings deposits and others:

"Art. 19. Every instrument, securities and the like shall be issued invariably as nominal, transferable solely by means of nominal endorsement.

§ 1 nominal will be the instruments, securities and the like outstanding prior to the effectiveness hereof, if, for any reason, they are again issued, covenanted, developed or gathered.

§ 2 issuance of other than nominal as provided hereunder renders unenforceable any dept supported on irregular instrument or securities or the like.

§ 3 The Brazilian Stock and Exchange Commission shall issue the rules to govern the securities related provisions contained in this article."

6 See O Novo Código Civil comentado [New Civil Code commented]/ Ricardo Fiuza – São Paulo: Saraiva, 2002, p. 802-803.

7 Direito Civil: Contratos em espécie [Civil Law: Contracts] / Sílvio de Salvo Venosa – 2. Ed. – São Paulo: Atlas, 2002 – (Coleção direito civil; v. 3), p. 448.

8 Títulos de Crédito (em conformidade com o Novo Código Civil) [Credit Instruments (under the new Civil Code)] / Fernando Netto Boiteux – São Paulo: Dialética, 2002, p. 28.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
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