International Business Law: Chapter 7

complying presentation

(in a LOC transaction) a (1) delivery of a seller's documents and draft to the nominated bank or directly to the issuing bank (2) within the time allowed for presentation and prior to the expiry date of the credit, (3) containing no discrepancies, which (4) complies with all other terms of the letter of credit, the provisions of the UCP, and standard banking practices

nominated bank

(in a LOC transaction) a bank usually in the seller's country that has been appointed by the issuing bank to honor the documents

documentary collection

The method by which documentary drafts are collected, involving banks acting as agents in the transfer of payment. goods are not released in a transaction until payment is collected.

time draft

a draft due at a future date or after a specified period

sight draft

a draft that is to be paid upon presentation or demand

independence principle

a general rule of law stating that the letter of credit is independent of the sales contract between buyer and seller

holder in due course

a holder in possession of a negotiable instrument (such as a draft or acceptance) that has been take: (1) for value, (2) in good faith, (3) without notice that it is overdue or has been dishonored, and (4) without notice that the instrument contains an unauthorized signature or has been altered

confirmed letter of credit

a letter of credit in which a second bank, usually in the seller's country, agrees to purchase documents and honor drafts on the same terms as the original issuing bank

standby letter of credit

a letter of credit in which the issuer is obligated to pay a beneficiary upon the presentation of documents indicating a default by the account party in the payment of a debt or the performance of an obligation

drawee

a party (normally a bank) that receives a draft from a drawer, with the purpose of paying a third party on behalf of the drawer

drawer

a party that creates a draft for the purpose of giving it to a drawee

endorsement and delivery

a requirement in a draft of a party to sign and deliver an instrument to a holder in order for it to be valid

Uniform Customs and Practice for Documentary Credits

a set of standardized rules for issuing and handling letters of credit that the International Chamber of Commerce drafts and publishes with the assistance of the international banking community

draft

a signed order of a drawer, give to a drawee who is in possession of money to which the drawer is entitled, to pay a sum of money to a third party, the payee, on demand or at a definite time.

negotiable instrument

a signed writing, containing an unconditional promise or order to pay a fixed sum of money, to order or to bearer, on demand or at a definite time

bill of exchange

a specialized type of international draft commonly used to expedite foreign money payments in many types of international transactions

account party

a term for the buyer in a letter of credit transaction

issuer or issuing bank

a term for the buyer's bank in a letter of credit transaction

beneficiary

a term for the seller in a letter of credit transaction

banker's acceptance

a time draft drawn on and accepted by a commercial bank

trade finance

a wide range of financing packages for international trade by banks and other financial institutions involved in commercial lending

rule of strict compliance

according to this view, the terms of documents presented to an issuing bank must strictly conform to the requirements of the letter of credit and the UCP

letter of credit

an obligation of a bank, usually irrevocable, issued on behalf of one of its customers and promising to pay a sum of money to a beneficiary upon the happening of a certain event or events

discrepancy

any difference, no matter how minor, between the terms of a required document and the terms required by the letter of credit

documentary letter of credit

see book pg. 188

fraud in the transaction

the presentation of documents covering goods and the shipment of bales of worthless rubbish

payee

the third party in a draft situation who receives payment from the drawee

negotiation

the transfer of an instrument from one party to another so that the transferee (called a holder) takes legal rights in the instrument

documentary draft

used to expedite payment in a documentary sale