Legal Definitions - au besoin

Au besoin is a French term that translates to "in case of need." In legal and financial contexts, particularly concerning a type of financial instrument called a bill of exchange, it refers to a specific instruction. This instruction designates a secondary party who is responsible for making payment if the primary party obligated to pay (known as the drawee) fails or refuses to do so.

Essentially, an "au besoin" clause acts as a safety net, providing the holder of the bill with a pre-arranged alternative source of payment, thereby reducing the risk of non-payment.

• Example 1: International Trade Transaction

  A textile manufacturer in Italy (the drawer) sells a large shipment of fabric to a clothing company in the United States. To facilitate payment, the Italian manufacturer draws a bill of exchange on the U.S. company's bank (the drawee). To add an extra layer of security, the Italian manufacturer includes an "au besoin" clause, naming a specific, reputable financial institution in London as the party to approach if the U.S. bank defaults on payment. If the U.S. bank refuses to honor the bill when presented, the Italian manufacturer can then present the bill to the designated London institution for payment.

  This example illustrates "au besoin" by showing how a seller in an international transaction can mitigate the risk of non-payment from the buyer's primary bank by pre-arranging a secondary payer.

• Example 2: Domestic Business Supply Agreement

  A small software development firm (the drawer) provides custom software to a large corporate client. For a significant project milestone payment, the software firm issues a bill of exchange drawn on the corporate client's primary operating bank account (the drawee). Concerned about potential delays or issues with the bank, the software firm includes an "au besoin" clause that specifies the corporate client's treasury department as the party responsible for payment if the bank declines the bill. This ensures a direct line of recourse within the client's organization.

  Here, "au besoin" provides the software firm with a clear, pre-defined alternative within the client's own structure, streamlining the process of seeking payment if the primary bank fails to act.

• Example 3: Securing a Commercial Loan

  A startup company obtains a short-term commercial loan from a private investor. The loan agreement is structured using a bill of exchange, where the startup itself is the drawee, obligated to pay the investor on a specific date. The investor, seeking additional assurance, insists on an "au besoin" clause. This clause names a wealthy individual, who is a principal shareholder of the startup, as the guarantor who will pay the bill if the startup company defaults on its obligation.

  This scenario demonstrates "au besoin" as a form of security, giving the investor a direct, pre-arranged alternative party to demand payment from if the primary debtor (the startup) cannot honor the bill.