Commercial Papers Law

Purpose and scope

• Governs bills of exchange, promissory notes and cheques: their mandatory particulars, transfer by endorsement, payment, recourse against signatories and limitation periods, and criminalises bounced cheques.
• It applies to any commercial paper that contains the required particulars, whatever the status of the signatory.
• Cheques, and bills of exchange and promissory notes registered on the national electronic platforms, are enforcement instruments submitted directly to the enforcement court without a lawsuit (Enforcement Law, Article 7).
• The new Commercial Transactions Law will replace it once in force; check its corresponding articles then.

Key rules, rights and obligations

• A cheque must contain the word cheque, an unconditional order to pay a fixed sum, the drawee bank, the place of payment, the date and place of issue, and the drawer's signature (Article 91); in the Kingdom it may only be drawn on a bank (Article 93).
• A cheque is payable on sight and any contrary statement is void, so a post-dated cheque is paid if presented before its date (Article 102).
• The drawer guarantees payment and any clause releasing him is void (Article 97); his stop-payment is accepted only in limited cases such as loss of the cheque or the holder's bankruptcy (Article 105).
• Bills of exchange and promissory notes have mandatory particulars (Articles 1 and 87); where amounts differ the amount in words prevails (Article 5); an interest clause in a bill is void (Article 6).
• Everyone who signed a bill, drawer, acceptor, endorser or guarantor, is jointly liable to the holder, who may sue them individually or together in any order (Article 58).
• Crossing restricts payment to a bank, and the words for account only prevent payment in cash (Articles 111 and 113).

Violations, penalties and common problems

• Issuing in bad faith a cheque without sufficient funds, withdrawing the funds after issue, stopping payment, drafting it so it cannot be paid, endorsing it knowing there are no funds, or knowingly receiving such a cheque: up to three years' imprisonment and a fine of up to SAR 50,000, or either (Article 118 as amended).
• Repeat within three years of the judgment: up to five years and SAR 100,000, or either (Article 118 as amended); the court may order the convicted person's name published (Article 121).
• A bank that in bad faith refuses to pay a valid funded cheque: a fine of up to SAR 100,000 plus compensation (Article 119 as amended).
• Issuing an undated or wrongly dated cheque, or drawing it on a non-bank: a fine of up to SAR 10,000 (Article 120 as amended).
• A common problem is signing a blank cheque as security for a contract and its later misuse; a cheque is a means of payment, not of security, and a side agreement is hard to rely on.

Procedures and key deadlines

• A cheque drawn and payable in the Kingdom is presented within one month of the issue date stated on it, or three months if drawn abroad (Article 103).
• A holder's recourse claims on a cheque against the drawer, endorsers and others are not heard six months after the presentment period ends (Article 116).
• A sight bill is presented within one year of its date (Article 39); a time bill is presented on its maturity date (Article 43).
• A claim on a bill against the acceptor is not heard three years after maturity; the holder's claims against the drawer and endorsers one year after protest or maturity; and endorsers' claims against each other after six months (Article 84). The period is interrupted by a lawsuit, a judgment for the debt or a separate written acknowledgement (Article 85).
• The holder may recover the principal and the costs of protest and notices (Article 60); force majeure extends the periods under conditions (Article 64).

An advisory summary prepared by Al-Bayan Al-Wadih Law Firm. It is not an official text and does not replace the law, its implementing regulations, or advice from a specialised lawyer. The official published text and its amendments prevail.