International Trade Finance

Methods of Effecting Payment

Instructs bank to pay indicated party

eg: cheque

Regulated by UCP

issued by ICC

supplementted by eUCP(electronic guide)

Not an intl treaty/convention

expressly incorporated into contract

Art 1 UCP

terms interpreted by courts(jurisdictional)

consistant

certainty

reliance

defined Art 2 UCP

Customer - applicant for credit

IB instructed to

(a) make payment

to the order of a 3rd Party (Beneficiary)

or to pay/accept bills of exchange drawn by B

OR (b) authorise another bank to effect such payment

to pay/accept/negotiate Bill of Xchg

against stipulated documents

provided T&C of credit complied with

guarantee

performance bond

documentary credit

standby credit

Art 6a UCP

obligation to honour can be withheld

contrary instructions from C

lower fees (to bank)

Art 8(a) can be cancelled by IB w/o notice

Art8(b) reimburse othr bank if docs accepted prior Notice of Cancellation

Art 9(a) definite undertaking - IB has to honour credit once S fulfils terms*

regardless of C's instructions

Art 6(b) clearly indicate

Art 6(c) absence, deemed irrevocable

AB confirms LC

undertakes to pay S on presentation of docs

AB becomes CB

confirm irrevocable LC

bill of exchange

a/c by shipping docs

S sends doc bill

direct to Buyer

accepts/pays on bill

return to S

arrange collection thru bank

S's bank (remitting) despatch doc bill to collecting bank

CB (in B's ctry) instructed not to part with it til payment/acceptance

similar to guarantee

payment on presntatn docs

promise by IB to pay S

default by B (IB's Customer)

not used to effect payment

certain events only

payment against documents

sight bill of xchnge is drawn on IB/AB

terms: *that payment will be made

*that payment will be made per contract

S present term bill of xchange to IB/AB

accepting bank pay at maturity of accepted bill

*that IB will accept drafts

S draws bill of Xchange on IB

AB (authorised by IB) negotiates bill

*that payment will be made w/o recourse to drawers/bona fide holders of bill of exchng

Art 48 UCP

a. beneficiary has right to request bank to effect payment /acceptance/ negotiation to 1/ more parties (2nd beneficiaries)b. credit can be transferred only if expressly designated as “transferable” by IBc. bank required to effect transfer is not obliged to effect such transfer except to extent & manner expressly consented to by bank

issued at S’s request to his supplier(entirely distinct from the credit issued at B’s request to S)

Seller's obligation is to deliver the goods

Buyer's obligation is to pay

common form of security

pledge of goods

bills of lading

other shipping docs

trust receipt

B undertakes

to hold docs released on trust for Bank

sells goods as agent for bank

holds proceeds on trust

applies to all contracts involving credits

payment effected on transfer of documents

documents in order

Art 4 UCP - parties deal with docs only

why

distance

buyer & seller unknown to each other

in breach of contract

goods sent are wrong

innocent party can't stop bank from paying under LC

banker is not concerned with contract of sale

Art 3 UCP

seek remedy: breach of contract

buyer has to seek remedy for breach in separate action

Held

fraud brought to IB's attention

before docs presented

IB's obligation should not protect unscrupulous seller

S restrained from calling payment under LC

courts will interfere with IB's obligation to pay under LC / Bank can refuse to pay on docs

establish: S acting fraudulently in tendering docs under LC

constructive knowledge sufficient

ought to have known when every reasonable care is taken