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