Академический Документы
Профессиональный Документы
Культура Документы
INDEPENDENCE PRINCIPLE
> What characterizes letters of credit, as distinguished from other accessory contract, is the ENGAGEMENT OF THE ISSUING BANK TO PAY THE SELLER ONCE THE DRAFT AND THE REQUIRED SHIPPING DOCUMENTS ARE PRESENTED TO IT. In turn, this arrangement ASSURES THE SELLER OF PROMPT PAYMENT, INDEPENDENT OF ANY BREACH OF THE MAIN SALES CONTRACT.
draw and receive payment in his own currency, the advising bank may be indicated as the paying bank also. When the draft is to be paid in this manner, the paying bank assumes no responsibility but merely pays the beneficiary and debits the payment immediately to the account which the issuing bank has with it. the buyeing rate for dollar exchange. doesnt concern him. > If the draft contemplated by the credit instrument, is to be drawn on the issuing bank or on other designated banks not in the city of the seller, any bank in the city of the seller which buys or discounts the draft of the beneficiary becomes a negotiating bank. As a rule, whenever, the facilities of an advising or notifying bank are used, the beneficiary is apt to offer his drafts to the advising bank for negotiation, thus giving the advising bank the character of a negotiating bank becomes an endorser and bona fide holder of the drafts and within the protection of the credit instrument. contingent liability, as drawer, continues until discharged by the actual payment of the bills of exchange. It is also protected by the drawers signature, as the drawers IF THE ISSUING BANK HAS NO ACCOUNT WITH THE PAYING BANK, the paying bank reimburses itself by drawing a bill of exchange on the issuing bank, in dollars, for the equivalent of the local currency paid to the beneficiary, at The beneficiary is entirely out of the transaction because his draft is completely discharged by the payment, and the credit arrangement between the paying bank and issuing bank
hold the bill of lading until the buyer pays the draft in the usual foreign sale this arrangement for securing payment of the price is
not adequate b. c. In some situations, sellers may need assurance of payment even before the time of payment. This problem arises in contracts which Although the proforma invoice may not specify, the seller will expect the letter of credit to be confirmed by the local bank in its But why does a local bank confirm rather than issue a letter of credit? The bank that issues the letter of credit needs The buyers bank can take steps to minimize or call for the manufacture of goods to the buyers specifications. location.
assurance that it will be reimbursed by the buyer, on whose behalf it pays the seller.
remove the hazards. It will receive the negotiable bill of lading controlling the goods which will provide security for the customers obligation to reimburse the bank; in addition, the buyers own bank can judge in the light of its knowledge of his financial standing whether added security is needed and can insist on such security before it issues the letter of credit d. To meet the sellers letter of credit requirements, the buyer will request its bank to arrange for the issuance of a letter of credit which The buyer will then sign a detailed application and agreement for commercial will comply with the terms of the proforma invoice.
credit prepared by the bank. The issuing bank, after approving the buyers credit standing transmits a letter of credit by cable to the confirming bank. This confirming bank will then deliver to seller a document advising the latter that the issuing bank opened a letter of credit in its favor and adding the confirming banks confirmation. credit. In this arrangement, the seller is assured of payment of its sight drafts drawn on the confirming bank in the amount of the total amount of the sale, provided it presents the documents called for in the letter of An examination of the letter of credit will also reveal that the bill of lading is to be consigned to the order of the buyers bank, thereby giving the bank control over the goods, with the consequent security for its claim against the buyer. 5. a. ACCEPTANE; SHIPMENT On the receipt of the confirmed letter of credit, the seller will send the order acknowledgment. This document will repeat the description
and price of the goods which has also appeared on the proforma invoice and states the number and expiration date of the letter of credit. b. Further, the arrival of the letter of credit is the go-signal for the seller to send the goods. The seller then prepares the COMMERCIAL INVOICE which provides a complete record of the transaction and is an important source of information to such interested parties as a bank discounting a draft or an underwriting extending issuance. c. As the time of shipment approaches, the seller will contact its forwarder and give its shipping instructions. It will inform that to When the forwarder receives these documents, he comply with the requirements of the letter of credit, the bill of lading must be made to the order of the issuing bank. It will also send copies of the commercial invoice, a packing list, and a Shippers export declaration. accordance with the forwarders instructions. d. The seller will then send the truck to the pier where they are delivered to the ocean carriers receiving clerk who signs the dock The dock receipt is a form supplied by the ocean carrier which contains information relevant to the shipping of the bearings receipt. takes over all further documentation as the agent of the shipper, the latter merely has to dispatch the goods from the factory in
such as the number of the pier, and the name of the ship. The dock receipt is NON-NEGOTIABLE and serves as a temporary receipt for the goods until they are loaded on board. e. The ocean carrier is soon ready to receive the cargo. When the goods are loaded on board, the steamship line issues a bill of lading which, to comply with the letter of credit, is CONSIGNED TO ORDER OF THE ISSUING BANK. The bill of lading is initially prepared by the forwarder on a form supplied by the ocean carrier, it sets forth the markings and numbers of the packages, description of the goods, and the number and weight of the packages. On its dorsal side, it will state that the goods are received for shipment, but a statement FREIGHT PREPAID ON BOARD is initiated by a representative of the steamship line after loading. The forwarder then delivers the bill of lading and the commercial invoice to the seller. 6. 7. a. INSURANCE PAYMENT; THE DRAFT. The confirming bank stated in their letter that the estimated CIF price would be available by your drafts on us at sight when
accompanied by the listed documents b. Seller accordingly draws a sight draft on the confirming bank. The sight draft together with the commercial invoice, insurance When the bank receives these
certificate, full set of bills of lading, and the packing list are presented to the confirming bank. reimburse the confirming bank. c.
documents, it issues its bank draft to sellers order and transmits the documents by air mail to issuing bank, which will The documents, sent by airmail, will reach the buyers bank well ahead of the ocean shipment. The time for release of the
documents to buyer and reimbursement to the bank will depend upon the arrangement which was made between the bank and buyer when the letter of credit was initially established. d. If the buyer plans to resell the goods, he may not be able to reimburse the bank until the goods arrive and he resells the goods. In this event, the issuing bank may need to take further steps to secure its claim against the buyer.
> Employed typically in construction contracts and contracts for international sale of goods > Demand guarantees are intended to safeguard the other party against non-performance or late or defective performance by the supplier or contractor
> Usually the guarantee in the 3-party structure is the principals bank and carries on business in the same country as the principal, whilst the beneficiary carries on business in a foreign country > Known as direct guarantees because the guarantee is issued to directly by the principals bank, not by the local bank in the beneficiarys country
his tender before its expiry, the beneficiary can call upon the guarantor to pay a specified sum designed to compensate him for the trouble
2. a. b. c.
Performance guarantee Guarantee of the central performance of the contract from commencement to completion Given for a specified percentage of the contract sum But there are stages in the relationship between the parties which precede and follow the central performance, and there
may be distinct segments of liability to be covered within that performance 3. a. b. 4. a. b. 5. a. Advance payment or repayment guarantee Underlying contract may entitle the principal to payment of stated sums in advance of performance The advance payment guarantee is designed to secure the beneficiarys right to repayment of the advance if the performance to which Retention guarantee Construction contracts usually provide for stage payments against architects or engineers certificate and for a specified against a retention guarantee securing repayment of the
percentage of the amount certified in each certificate to be retained by the employer for a specified period of time as safeguard against defects The employer may be willing to release such retention moneys Maintenance or warranty guarantee Construction contracts usually provide that on completion part of the retention moneys are to be retained for a specified period to released retention moneys if defects are later found or if the contractor fails to complete the contract
cover the cost of any defects or malfunction which become manifest during that period
from the principal, and the guarantee is intended to be resorted to only if the principal has failed to perform. But though this is the intent of the parties, the guarantee isnt in form linked to default under the underlying contract, nor there is any question of performance to hold the beneficiary harmless up to the agreed maximum; and the sole condition of the guarantors payment liability is the presentation of a demand and other documents specified in the guarantee in the manner of and within the period of the guarantee > THE GUARANTOR HAS NO CONCERN WITH THE UNDERLYING CONTRACT AND IF DEMAND IS DULY PRESENTED, PAYMENT MUST BE MADE DESPITE ALLEGATIONS BY THE PRINCIPAL HAS FULLY PERFORMED THE CONTRACTIN THE ABSENCE OF ESTABLISHED FRAUD OR OTHER EVENT CONSTITUTING GROUND FOR NON-PAYMENT
> Standby credit in legal perspective is simply another term for demand guarantees > The standby credit has developed into an all-purpose financial support instrument embracing a much wider range of uses than the normal demand guarantee. Thus, standby credits are used to support financial and non-financial obligations of the principal and to provide credit enhancement for the primary financial undertaking
> Where it is intended that the guarantee shall not commence until presentation of a particular document, this fact should be specified > Direct guarantee: principal, guarantor, and beneficiary should be identified > Indirect guarantee: principal, instructing party, beneficiary, and counter-guarantee > Central to the demand guarantee is its documentary character: the rights and obligations it creates are to be determined solely from the terms of the guarantee and from any document presented in accordance with the guarantee, without the need to ascertain external facts
San BedaCollege of Law LETTERS OF CREDIT In commercial transactions involving letters of credit, the functions assumed by a correspondent bank are classified according to the obligations taken up by it. The correspondent bank may be called a notifying bank, a negotiating bank, or a confirming bank. In case of a notifying bank, the correspondent bank assumes no liability except to notify and/or transmit to the beneficiary the existence of the letter of credit. The notifying bank may suggest to the seller its willingness to negotiate, but this fact alone does not imply that the notifying bank promises to accept the draft drawn under the documentary credit. A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is only with that of the issuing bank and not with the beneficiary to whom he assumes no liability. It follows therefore that when the petitioner refused to negotiate with the private respondent, the latter has no cause of action against the petitioner for the enforcement of his rights under the letter. A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a draft under the letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it has no liability with respect to the seller but after negotiation, a contractual relationship will then prevail between the negotiating bank and the seller. In the case of a confirming bank, the correspondent bank assumes a direct obligation to the seller and its liability is a primary one as if the correspondent bank itself had issued the letter of credit. (FEATI BANK VS. CA) What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and the required shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment independent of any breach of the main sales contract. By this so-called "independence principle," the bank determines compliance with the letter of credit only by examining the sh ipping documents presented; it is precluded from determining whether the main contract is actually accomplished or not. (BANK OF AMERICA VS. CA)