BSL quiz 4

Letter of Credit

- the definite undertaking of a bank - issued in accordance with the instructions of their customer - addressed to the beneficiary - wherein the bank promises to pay a certain sum of money - (or to accept or negotiate the drafts up to that sum) - within the prescribed time limits - upon the complying presentation of the required and conforming documents. - letter of credit is independent from the sales contract from which it was based

eUCP

International Chamber of Commerce extends UCP to electronic documents

Are banks requird to know or inspect the quantity and quality of merchandise?

No banks are not required to inspect

In bank collection process, drafts can be accepted by...

a buyer, creating a trade acceptance

Maurice O'Meara vs National Park Bank of NY

- bank was in error for not paying based on the paper's weight - bank obligation is to pay when presented with the documents called for in letter of credit

Bills of Exchange and Documentary drafts are negotiable instruments that can serve 2 purposes:

1. Act as a substitute for money 2. Act as a financing or credit device

Parties to a Transaction (3)

1. issuing bank (buyer's bank) 2. account party (buyer) 3. beneficiary party (seller)

Documentary Collections is similar to...

C.O.D. transaction

The Bill of Exchange Act governs drafts/ bills of exchange where?

England

Middle East Politics and Standby Letters of Credit

Iranian Claims ???

Essay Question:

The bank wins under the UCP. Coinciding with the decision in the Courtald's North America Inc. vs North Carolina National Bank case, the bank was correct in refusing to pay when the documents did not exactly match the LOC

Confirmed Letter of Credit

- A second guarantee, in addition to a letter of credit, that commits to payment of the letter of credit - A confirmed letter of credit is typically used when the issuing bank of the letter of credit may have questionable creditworthiness and the seller seeks to get a second guarantee to assure payment.

SWIFT

- Society for Worldwide INterbank Financial Telecommunication - It is a high speed communications network between banks set up to transfer funds worldwide - Most Letters of Credit are transmitted through SWIFT

UCP

- Uniform Customs and Practices (UCP) - is incorporated into LOC - NY Law states UCP (NOT UCC) is applicable - presumed irrevocable

Advising Bank

- advising bank's responsibility is to advise a beneficiary on the letter of credit and to authenticate the letter of credit issued by the issuer to avoid fraud

Procedures for Dishonor

- bank must follow procedure or face "issuer preclusion" and will be prevented from asserting the documents are discrepant - bank must give notice NO LATER than 7 days after receipt of documents

UCP 600 Rule

- changes to UCP in 2007 indicate a move towards modified strict compliance rule - functional standard of compliance - used by courts in United States and some European countries

Complying Presentation

- delivery of seller's documents and drafts to the nominated bank or directly to the issuing bank - must contain ALL the required documents, within the time frame allowed and prior to the expiration of the credit, with no discrepancies and which complies with all terms of Letter of Credit

Standby Letters of Credit

- issuer is obligated to pay beneficiary upon presentation documents indicating a default by the account party in terms of payment of debt or performance of the obligation

Eximbank Financing

- largest US export financing agency - can provide guarantees on loans made by commercial banks, and insurance on credit to foreign customers

Independence Principle

- letter of credit is independent of sales contract

Seller's Compliance with the Letter of Credit

- seller must read the terms and conditions of the Letter of Credit very carefully before shipment or manufacturing of product - must make sure LOC is accurate and reflects terms and conditions of sales contract

Rules of Strict Compliance

- terms of documents presented to issuing bank must strictly conform to requirements of the LOC and the UCP - Functional Standard of Compliance

Other Specialized Uses for Letter of Credit

1. Transferrable Credits 2. Red Clauses in Credits 3. Revolving and Evergreen Credits 4. Back to Back Letter of Credit Financing

Requirements for a Bill of Exchange (9)

1. Unconditional order in writing 2. From one person to another 3. Signed by person giving it 4. To pay on demand or at a certain time 5. For a fixed sum of money 6. To the order of the bearer. 7. There is Negotiation and transfer of Negotiable Instruments 8. Has proper endorsement 9. Delivery occurs

Requirements to be a Holder in Due Course (5)

1. has a negotiable instrument 2. takes for value 3. in good faith 4. without notice of dishonor or overdue 5. without notice of alteration or unauthorized signature

American bell International Inc vs. Islamic Republic of Iran Case

Court could not enjoin the the bank from paying $30 million on standby LOC to Iran which was "callable at any time for any reason"

Examination of Documents and Discrpeancies

UCP allows up to 5 days to inspect

Enjoining Banks from Purchasing Documents in cases of Fraud

UCP is silent when court may enjoin a letter of credit for fraud

Balero

an electronic infrastructure for exchanging electronic documents in a common format

The Bill of Exchange and Draft...

are two names for the same type of negotiable instrument

Confirming Bank

bank in the exporter's country that guarantees that the LOC established by the importer will be honored once the conditions therein are fully complied with

Courtauld's North America Inc. vs North Carolina National Bank

bank was correct in refusing to pay when the documents did not exactly match the LOC

Ocean Bill of Lading

must be "on board"

Identrus

provides secure identities

Commercial Invoice

required by buyers, bankers, and customs authorities

Bill of Exchange

specialized type of international draft used to expedite foreign money payments

Under UCP 600, a document titled "letter of credit" is presumed...

to be irrevocable

in bank collection process, buyer agrees to pay...

unconditionally at the time stated on draft

Sztein vs J. Henry Schroeder Banking Corp

where there is credible evidence of active fraud on the seller's part before the bank has paid on the LOC, the court may enjoin payment