Article 19 of the Saudi Commercial Papers Law
المادة 19 من نظام الأوراق التجارية · الفصل الثاني: تداول الكمبيالة بالتظهير
Article 19 regulates pledge endorsement with words such as "value in security" or "value in pledge": the holder exercises the bill's rights, an endorsement by the holder counts as agency, and the debtor may raise personal defenses against the endorser only if the holder intended to harm the debtor.
Official text (Arabic)
This article has not been amended since the law was issued.
إذا اشتمل التظهير على عبارة (القيمة للضمان) أو (القيمة رهن) أو أية عبارة مماثلة تفيد الرهن، جاز لحامل الكمبيالة أن يباشر جميع الحقوق الناشئة عنها.
فإن ظهرها اعتبر التظهير حاصلا على سبيل التوكيل. وليس للمدين بالكمبيالة الاحتجاج على الحامل بالدفوع المبينة على علاقته الشخصية بالمظهر إلا إذا قصد الحامل وقت حصوله عليها الإضرار بالمدين.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 19 explained in plain English
A pledge endorsement is an endorsement intended to pledge the bill of exchange as security for a debt, not to transfer ownership of it. It arises if the endorsement includes the words "value in security" or "value in pledge" or any similar words indicating a pledge.
The following rules follow from it:
- The holder may exercise all the rights arising from the bill of exchange, such as claiming it.
- If the holder endorses it, the endorsement is treated as made as agent, so it does not transfer ownership.
- The debtor on the bill may not raise against the holder defenses based on his or her personal relationship with the endorser, unless the holder's intention when obtaining the bill was to harm the debtor.
The difference from the endorsement for collection appears in Article 18: in the latter, those bound may raise against the holder only the defenses permitted against the endorser, whereas in the pledge endorsement the holder is protected from personal defenses relating to the endorser except where there is intent to harm. Article 20 also deals with the effect of an endorsement made after the due date.
Anyone who provides a bill of exchange as security for a debt, or receives one in that capacity, can consult a lawyer specializing in banking and finance or in commercial cases and commercial papers.
Practical example
A factory owner in Dammam borrowed money from a financing company and endorsed to it a bill of exchange he owned with the words "value in security." Under Article 19, the financing company may exercise the bill's rights, and the debtor on the bill cannot raise against it his personal dispute with the factory owner, unless the company intended, when obtaining the bill, to harm him.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 19 of the Saudi Commercial Papers Law
What is a pledge endorsement of a bill of exchange?
It is an endorsement that includes the words "value in security" or "value in pledge" or any similar words indicating a pledge.
What if the pledgee endorses the bill to someone else?
The endorsement is treated as made as agent.
Can the debtor raise a dispute with the endorser against the pledgee?
No, unless the holder intended, when obtaining the bill, to harm the debtor.
More articles on Endorsing Commercial Papers
- Article 12
Article 12 allows a bill of exchange to be transferred by endorsement even if not expressly drawn to order, bars endorsement where the drawer writes "not to order", and permits endorsement to the drawee, the drawer or any other obligor.
يجوز تداول الكمبيالة بالتظهير ولو لم يذكر فيها صراحة إنها مسحوبة (لا أمر). ولا يجوز تداول الكمبيالة التي يضع فيها ساحبها عبارة (ليست لأمر) أو أية عبارة مماثلة إ
- Article 13
Article 13 requires an endorsement to be free of any condition, treats a condition attached to it as if not written, makes a partial endorsement void, and treats an endorsement to bearer as a blank endorsement.
يجب أن يكون التظهير خاليا من كل شرط، وكل شرط علق عليه التظهير يعتبر كأن لم يكن. والتظهير الجزئي باطل. ويعتبر التظهير للحامل تظهيرا على بياض.
- Article 14
Article 14 sets out how an endorsement is written on a bill of exchange or an attached paper and signed by the endorser, permits a blank endorsement, and states the holder's options in that case.
يكتب التظهير على الكمبيالة ذاتها أو على ورقة أخرى متصلة بها ويوقعه المظهر. ويجوز ألا يكتب في التظهير اسم المظهر إليه ، كما يجوز أن يقتصر التظهير على توقيع المظه
- Article 15
Article 15 makes the endorser guarantee acceptance and payment of the bill of exchange unless otherwise stipulated, and lets the endorser prohibit re-endorsement, in which case the endorser does not guarantee to those who receive the bill by a later endorsement.
يضمن المظهر قبول الكمبيالة ووفائها ما لم يشترط غير ذلك. ويجوز له حظر تظهيرها من جديد، وفي هذه الحالة لا يكون ملزما بالضمان لمن تؤول إليهم الكمبيالة بتظهير لاحق.
- Article 16
Article 16 treats the possessor of a bill of exchange as its lawful holder if they prove their right by an unbroken series of endorsements, and protects a holder from having to give up a lost bill unless they obtained it in bad faith or by gross fault.
يعتبر حائز الكمبيالة حاملها الشرعي متى أثبت أنه صاحب الحق فيها بتظهيرات غير منقطعة ولو كان آخرها تظهيرا على بياض. والتظهيرات المشطوبة تعتبر في هذا الشأن كأن لم
- Article 17
Article 17 provides that endorsement transfers all rights arising from the bill of exchange, and bars a defendant from raising against the holder defenses based on their personal relationship with the drawer or earlier holders unless the holder intended to harm the debtor.
ينقل التظهير جميع الحقوق الناشئة عن الكمبيالة. وليس لمن أقيمت عليه دعوى بكمبيالة أن يحتج على حاملها بالدفوع المبينة على علاقته الشخصية بساحبها أو بحامليها الساب
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.