Bank Collections, Trade Finance and Letters of Credit.ppt

Bank Collections, Trade Finance and Letters of Credit Chapter 7 Bills of Exchange or Draft: Negotiable Instrument Unconditional order in writing From one person to another Signed by the person giving it To pay on demand or at a certain time Fixed sum of money To the ORDER or BEARER Terminology Seller =drawer payee Buyer or buyer’s bank= drawee Bill of Exchange or Draft Act as a substitute for money Act as a financing or credit device Negotiation of Order Instrument Indorsement Delivery Drafts Drafts can be accepted by buyer creating a trade acceptance Buyer agrees to pay unconditionally at the time stated on the draft Banker’s acceptance= bank agrees to pay= negotiable instrument Holder in due course: Special Protection Have a negotiable instrument (draft or acceptance) Taken for value In good faith Without notice of dishonor or overdue Without notice of alteration or unauthorized signature Letter of Credit Documentary L/C Issuing Bank (Buyer’s bank), account party (Buyer), beneficiary (seller) Bank promises to pay the beneficiary’s draft upon presentation of the specified documents Bank’s promise to pay is better than buyer’s Factoring Accounts Receivable Seller assigns rights to collect to assignee or factor Does Assignee have the same rights as a holder in due course? Letter of Credit: Law Art. 5 UCC Uniform Customs Practice (UCP) incorporated into L/C NY law states UCP not UCC is applicable The Documentary Sale with a Letter of Credit Basic Principles of L/C illustrated thru cases: L/C Is separate from the contract;Bank is obligated to pay if L/C is in order Maurice O’Meara v. National Park Bank NPB issued letter of credit to Ronconi (beneficiary) at request of Sun Herald to cover a delivery of newsprint. Ronconi presents invoice and draft to bank, but bank refused because it could not test strength of paper. During this time the price of newsprint dropped over $20,000. Ronconi transferred their right to collect to O’Meara. Maurice O’Meara v. National Par