Chapter Seven

International Payment Law

International Payment
International payment are payment made between countries, whether in settlement of a trade debt, as a unilateral transfer of funds, for capital investment, or for some other purpose. The reasons for such payments and the methods of making them and accounting for them are matters of concern to economists and national governments, but there are also a system of international law which regulate such activities, and we call such international law as international payment law.

Negotiable instruments
Definition A negotiable instrument is a specialized type of "contract" for the payment of money that is unconditional and capable of transfer by negotiation.

Parties to negotiable instruments 1.Drawer: The issuer of a bill of exchange 2.Maker: The issuer of a promissory note 3.Drawee: The person ordered to pay a bill of exchange 4.Payee: The person to whom a bill or note is to be paid 5.Endorser: A payee who has signed and delivered a bill or note to an endorsee 6. Endorsee: A person who receives an endorsed bill or note from an endorser

Bills of exchange
Definition A bill of exchange is a written, dated, and signed instrument that contains an unconditional order form the drawer that directs the drawee to pay a definite sum of money to a payee on demand or at a specified future time.

Elements of bills of exchange A bill of exchange must: 1. be in writing and payable either to order or to bearer; 2. contain the term bill of exchange in the body and language of the check; 3. state the place where the bill is drawn,; 4. state the place where payment is to be made; 5. be dated.

Types of bills of exchange 1. Time bill: Bill of exchange that is payable at a definite future time; 2. Sight bill: Bill of exchange that is payable at the time it is presented or at a stated time after presentment.

Promissory notes
Definition A written, dated, and signed two-party instrument containing an unconditional promise by a maker to pay a definite sum of money to a payee on demand or at a specified future date.

Difference between a promissory note and a bill of exchange The only difference between a promissory note and a bill of exchange is that the maker of a note promises to personally pay the payee, rather than ordering a third party to do so.

Types of promissory notes Promissory notes are used in a variety of credit transactions and are commonly given the name of transaction involved: 1.A collateral noteis one secured by personal property; 2.A mortgage note is secured by real property; 3.A installment note is payable in installments; 4.Certificate of deposit is a promissory note on which the maker is a bank.

Negotiability of bills and notes

To be negotiable, a bill or note must: 1. be in the proper form, usually in written form; 2. contain a promise by the maker or drawer to make payment.

Promissory requirements of a bill or note To meet the promissory requirements, a bill or note must do the following: 1.State an unconditional promise or order to pay; 2.State a definite sum of money or a monetary unit of account; 3.Be payable on demand or at a definite time; 4.Be signed by the maker or drawer.

The negotiation of bills and notes

Definition of negotiation Negotiation is the transfer of a bill or note in such a way that the recipient becomes a holder.

Different papers relating to negotiation 1. Straight paper Straight paper is a bill or note that contains the definite name of a payee and that cannot be transfered.

2. Order paper Order paper is a bill or note that either: A. contains the name of a payee capable of endorsing it; B. contains as its last endorsement a so-called special endorsement.

3. Bearer paper Bearer paper is an instrument that either: A. contains on its face an order to pay the bearer or to pay in cash; B. contains as its last endorsement a so-called blank endorsement.

Endorsements
Definition Endorsement is an act pf a payee, drawee, accommodation party, or holder of a negotiable instrument in signing the back of the instrument, with or without qualifying words, to transfer rights in the instrument to another.

Types of endorsements There are four kinds of endorsements:

1.Special endorsement An endorsement of a negotiable instrument authorizing payment to an entity other than the entity to which the negotiable instrument was originally written. A special endorsement consists of a signature and a statement identifying the entity to which the negotiable instruments should be paid. 2.Blank endorsement An endorsement consisting of nothing but a signature and allowing any party in possession of the endorsed item to execute a claim." That is, blank endorsement of a negotiable instrument such as a check is only a signature, not indicating the payee. The effect of this is that it is payable only to the bearer.

3.Qualified endorsement An endorsement in which the endorser does not guarantee that an instrument will be accepted and paid by the drawer or maker. Commonly, this is done by adding the words without recourse;

4.Restrictive endorsement An endorsement that restricts the rights of subsequent holders. There four kinds of restrictive endorsements:

1Conditional endorsement An endorsement that conditions payment on the occurrence of some event. The effect of this endorsement is to make the bill or note a nonnegotiable instrument as to the endorser only;

2Endorsement for collection An endorsement that makes the endorsee a collection agent for the endorser. The effect of an endorsement for collection is to put the instrument into the bank collection process;

3Endorsement prohibiting further endorsements An endorsement that states that the instrument may be paid only to a particular person;

4Agency endorsement An endorsement that requires the endorsee to pay the proceedsfrom the negotiation of the instrument to the endorser or a designated third party

Ways of payment
Collection 1.Clean collection whereby only the financial document (draft or bill of exchange) is sent through the banks, without a bill of lading and/or other shipping documents (which are sent separately by the consignor to the consignee). Used usually in open account arrangements, clean collection allows a consignee to take delivery of the shipment without paying and without making a firm commitment to pay on a fixed date.

2.Documentary collection 1 Document against payment (D/P) Arrangement under documentary collection in which an seller instructs the presenting bank to hand over shipping and title documents to the buyer only if the buyer fully pays the accompanying bill of exchange or draft.

2 Documents against acceptance (D/A) Arrangement under documentary collection in which an seller instructs the presenting bank to hand over shipping and title documents to the buyer only if the buyer accepts the accompanying bill of exchange or draft by signing it.

 Letter of credit
1. Definition of L/C L/C is an instrument issued by a bank or other person at the request of an account party that obliges the issuer to pay to a beneficiary a sum of money within a certain period of time upon the beneficiarys presentation of documents specified by the account party.

2. Types of L/C

(1) Revocable L/C: The L/C is revocable at any time before payment by the issuing bank; (2) Irrevocalbe L/C: The L/C cannot be altered without the beneficiarys express consent; (3) Confirmed L/C: A second bank adds its endorsement to the credit, indication that it too will make payment against the specified documents (4) Documentary L/C: The beneficiary cannot obtain payment unless he present the documents required by the letter of credit.

3.Parties to a letter of credit

(1) Account party: The person who requests a bank or some other person to issue a letter of credit; (2) Issuing bank: The bank which issues a letter of credit under the request of the account party; (3) Advising bank: The bank which just verifies the authenticity of the letter of credit and transfer it to the beneficiary, acting as an agent of the issuing bank; (4) Paying bank: The bank which is obliged to pay specific money to a beneficiary according to the letter of credit (5) Beneficiary: The person who can acquire the monetary right under the letter of credit, and who is often the seller.

4.Obligations of banks

An issuing bank, or any bank that pays, accepts, or negotiates a letter of credit, is obliged to examine all documents with reasonable care to ascertain that they appear on their face in accordance with the terms and conditions of the credit.

Questions

1.Please introduce the types of endorsements. 2.Please introduce the types of letters of credit.