国际商法英文版：7 Chapter 12 Financing.doc

Chapter 12 Financing

Contents
Summary…………………………………………………………………………2
Outline…………………………………………………………………………3
Questions ………………………………………………………………………13
Vocabulary………………………………………………………………………15

Part 1 Summary

Part A
Financing foreign trade: introduce the kinds of documents .trade terms, financing arrangements used in international sales that must be known.
Part B and C
This part mainly discusses the function of the bills of lading and the bills of exchange. They are the two important financing and payment instruments used in international trade. This part also introduce the law governing bills of exchange and many types of bills of exchange, time and sight bills.
Part D
This part gives us a definition of the promissory note. It also defines the different patties to bills of exchange and promissory notes. It lists a lot of examples of typical promissory notes.
Part E
To trade to run smoothly, a bill or note have a lot of things to do.1.A bill or note must contain a promise or an order to pay that is unconditional. 2. Define sum of money or monetary unit of account. 3. payable on demand or at a definite time. 4. signed by the maker or drawer.
Part F
To satisfy commercial, bills and notes have to be freely transferable. This part discuss 1 the meaning of assignment 2 the definition and many kinds of negotiation .4 The role of banks in collecting and paying negotiable instruments.5 Limitations on the excuses that drawers and makers can use to avoid paying off a bill or note. 6Liabilities of makers, drawers, drawees endorsers, and accommodation parties
Part G
This part mainly introduces the letters of credit. For example, how to apply for a letter of credit, and the governing law.
Part H
This part mainly introduces 1 private sources of capital 2 governmental sources of capital 3 regional and international development agencies.

Part 2 Outline

Chapter 12 - Financing
A. SCOPE OF INTERNATIONAL FINANCING
1. The Financing of Foreign Trade: Involves the underwriting, paying, and collecting of money for the purchase of goods and services
2. The Capitalization of Foreign Investments: Involves the acquisition of debt and equity financing to establish or expand overseas business operations
B. FINANCING FOREIGN TRADE
1. Trade Documents
a. Reason for use in international trade: Buyers and sellers are separated both in distance and by the differing financial practices of their home countries.
1) Difficult for seller to determine the credit standing of a foreign buyer.
2) Difficult for buyer to reliably establish the foreign seller’s integrity and reputation.
C. BILLS OF LADING
1. The Essential Document for all international sales
a. A document of title: It represents the goods.
1) Allows for transfer of title while goods are in the possession of a carrier or warehouseman.
2) Discussed in Lecture 10.
D. BILLS OF EXCHANGE
1. Defined: A bill of exchange (or draft) is —
a. A written, dated and signed instrument.
b. Containing an unconditional order.
1) From drawer.
2) Directing drawee.
3) To pay a payee.
c. A definite sum of money.
d. With payment to be made.
1) On demand, or
2) At a specified future date.
2. Bills of Exchange are Negotiable Instruments
a. A proper holder will take it free of the “personal defenses” or “equities” that the drawer might have that:
1) The underlying contract was improperly performed, or
2) The instrument was improperly made.
b. Importance: Bills of exchange are more readily saleable and, therefore, useful financial tools for raising money.
3. The Laws Governing Bills of Exchange
a. Three basic laws:
1) Anglo-American laws.
a) English Bills of Exchange Act (BEA) of 1882.
1] Applicable in UK and commonwealth countries.
b) United States Uniform Commercial Code (UCC).
1] Adopted in all US states except Louisiana.
2) Model laws applicable in the rest of the world.
a) Uniform Law on Bills of Exchange and Promissory Notes (ULB) of 1930.
b) Uniform Law for Checks (ULC) adopted in 1931.
3) United Nations’ Convention.
a) UN Convention on International Bills of Exchange and International Promissory Notes (CIBN) of 1988.
b) Meant to make international transactions uniform.
c) Not yet in force — unlikely to be in force soon.
4. The “Form” of Bills of Exchange
a. BEA and UCC requirements:
1) In writing.
2) Payable either to order or to bearer.
b. ULB requirements:
1) In writing.
2) Payable either to order or to bearer.
3) Contain the term “bill of exchange” in the body and
the language of the check.
4) State the place where the bill is drawn.
5) State the place where payment is to be made.
6) Be dated.
5. Types of Bills of Exchange
a. Time bill: Drawee must pay at a definite future time.
b. Sight (or demand) bill: Drawee must pay either when —
1) The holder presents the bill for payment, or
2) At a stated time after presentment.
c. Trade acceptances: Drawee is one who bought goods from the drawer and owes the sale price to the drawer.
1) Drawee is a credit buyer.
2) May be a time or sight bill.
d. Checks: Drawee is holding money on account for drawer.
1) Drawee is a bank.
2) Checks are always payable on demand.
E. PROMISSORY NOTES
1. Defined: A promissory note (or simply a “note”) is
a. A written promise.
b. To pay a determinate sum of money.
c. Made between two parties.
1) Maker: The issuer of a promissory note.
2) Payee: The person to whom the note is to be paid.
2. Difference Between a Promissory Note and a Bill of Exchange The maker of a note promises to personally pay the payee rather than ordering a third party to do so
3. Governing Law: Same as those that apply to bills of exchange
F. NEGOTIABILITY OF BILLS AND NOTES
1. Requirements of Negotiability
a. Be in the proper form, and
b. Contain the following promissory elements:
1) State an unconditional promise or order to pay.
2) State a definite sum of money or a monetary unit of account.
a) Money.
1] BEA, UCC and ULB define money as “a medium of exchange authorized or adopted by a domestic or foreign government as part of its currency.”
2] International practice also includes ad hoc currency baskets established by the parties.
b) Definite Sum: The sum to be paid must be ascertainable from the bill or note itself without reference to any outside source.
3) Be payable on demand or at a definite time.
4) Be signed by the maker or drawer.
a) Signature: “Any symbol executed or adopted by a party with present intention to authenticate a writing.”
Case 12-1. Constantaras v. Anagnostopoulos
G. THE NEGOTIATION AND TRANSFER OF BILLS AND NOTES
1. Assignment: The transfer of rights under a contract
a. The assignee acquires only those rights that the assignor possessed.
b. Any objections to honoring the assigned obligations that could be raised against the assignor can be raised against the assignee.
2. Negotiation: The transfer of a bill or note in such a way that the recipient becomes a holder
a. Negotiating order paper.
1) Order paper: A bill or note payable to a named payee.
2) Negotiated by delivery and endorsement.
b. Negotiating bearer paper.
1) Bearer paper: A bill or note payable to the bearer or to cash.
2) Negotiated by delivery.
Case 12-2. Miller v. Race
c. Converting order to bearer paper and bearer to order paper.
1) Order to bearer paper:
a) By an endorsement in blank, i.e., the endorsee’s signature alone.
b) By an endorsement to pay to the bearer.
2) Bearer to order paper: By the use of a special endorsement, e.g. “pay to John Adams.”
3. Forged Endorsements
a. Effect.
1) ULB: A forged endorsement is effective.
a) Both the person taking a forged instrument and all subsequent holders are entitled to payment.
b) Rationale: This rule encourages the free transfer and exchange of bills and notes.
2) BEA and UCC: A forged endorsement is ineffective.
a) The endorsee taking from a forger is responsible for determining the validity of an endorsement.
Case 12-3. Mair v. Bank of Nova Scotia
1] Exceptions:
a] Impostor rule: A forged endorsement is effective if a drawer, maker, or endorser draws, makes or endorses an instrument to an imposter.
b] Fictitious payee rule: A forged endorsement is effective if the instrument was issued in the name of a payee who had no interest in the instrument.
b) Rationale: Liability is imposed on the person best able to prevent the forgery from happening.
c) Problem with rule: It encourages litigation.
1] Determination of whether one or the other of the two exceptions applies has to be made after the fact.
2] The last holder has to initiate suit against the dishonoring party to determine who must press the claim against the forger.
4. Limitations on the Excuses that Drawers and Makers Can Use to Avoid Paying Off a Bill or Note
a. ULB limitations.
1) Basic rule: Anyone who acquires a bill or note by negotiation is a holder who is entitled to payment from the maker or drawer.
2) Exceptions:
a) The possessor is not a holder because he did not acquire title through an uninterrupted series of endorsements.
b) The holder acquired the instrument in bad faith.
1] Bad faith includes:
a] Actual theft of the instrument.
b] Knowing that the instrument is stolen, lost, or misplaced.
c] Knowing that the payee, or some prior holder, is not properly entitled to payment.
c) The holder acquired the instrument through gross negligence (i.e., carelessly but without actual knowledge).
b. BEA/UCC limitations:
1) Basic rule: The maker or drawer does not have to pay someone who is not a holder, he can assert “personal defenses” or “equities” against a holder, but only “real defenses” against a holder-in-due course.
a) Holder: One who acquired the bill or note through an uninterrupted series of endorsements.
b) Holder in Due Course (HDC): A holder who acquires an instrument:
1] For value,
2] In good faith, and
3] Without notice that it is overdue, or that it has been dishonored, or that the maker, drawer, or a prior endorser has a valid excuse for not paying it off.
2) Personal Defenses:
a) Breach of contract (including breach of contract warranties).
b) Lack or failure of consideration.
c) Fraud in the inducement.
d) Illegality, incapacity (other than minority), or duress, if the contract is voidable.
e) Previous payment of the instrument.
f) Unauthorized completion of an incomplete instrument.
g) Nondelivery of the instrument.
3) Real Defenses:
a) Forgery.
b) Fraud in the execution.
c) Material alteration.
d) Discharge in bankruptcy.
e) Minority, if the contract is voidable.
f) Illegality, incapacity, or duress, if the contract is void.
5. Liabilities of Makers, Drawers, Drawees, and Endorsers
a. Liability on the Instrument: Liability arising out of a signature.
1) Makers and drawees have “primary” liability: Must make payment on presentment of the instrument.
Case 12-4. Far East Realty Investment, Inc. v. Court of Appeals
2) Drawers and endorsers have “secondary” liability: Only have to pay if the maker or drawee fails to do so.
b. Warranty Liability: Responsibility arising out of the implied guarantees a person makes at the time he transfers or presents a negotiable instrument.
1) BEA and ULB: No warranty liability.
2) UCC: Every person who transfers an instrument (whether order or bearer paper) in exchange for consideration makes five implied guarantees to his immediate transferee and to every subsequent holder who takes the instrument in good faith.
a) The transferor has good title to the instrument or is otherwise authorized to obtain payment or acceptance on behalf of one who does have good title.
b) All signatures are genuine or authorized.
c) The instrument has not been materially altered.
d) No defense of any party is good against the transferor.
e) The transferor has no knowledge of any insolvency proceedings against the maker, the acceptor, or the drawer of an unaccepted instrument.
H. THE ROLE OF BANKS IN COLLECTING AND PAYING NEGOTIABLE INSTRUMENTS
1. Functions Banks Perform in connection with negotiation of bills and notes
a. Issue instruments themselves (e.g., certified checks and certificates of deposit).
b. They assume primary liability (as drawees and acceptors) on bills of exchange and promissory notes.
c. They act as the collecting agent for holders and transferees.
d. They take instruments as endorsees, paying the endorser, and presenting the instrument for payment in their own right.
Case 12-5. Charles R. Allen, Inc. v. Island Cooperative Services Cooperative Association
I. LETTERS OF CREDIT
1. Alternatives to Using Letters of Credit
a. “Cash in advance” term: Used if seller is unable to determine buyer’s creditworthiness.
b. “Documents Against Payment” term: Used when buyer wants to confirm that the goods have been shipped.
1) Seller instructs a bank in the buyer’s country to release title (e.g., a carrier’s bill of lading) only after the buyer delivers to the bank a receipt from the seller indicating that the seller has received payment.
c. “Documents Against Acceptance” term: Buyer insists upon taking delivery before making payment.
1) Seller instructs a bank in the buyer’s country to release title only on receipt of an acknowledgement of delivery.
2. The Letter of Credit Transaction
a. Defined: An instrument —
1) Issued by a bank, or other person, at the request of a customer (called an “account party”).
2) It is a conditional agreement between the issuer and the account party that is intended to benefit a third party.
3) It obliges the issuer:
a) To pay a bill of exchange drawn by the account party, up to a certain sum of money,
b) Within a stated time period, and
c) Upon presentation by the beneficiary of documents designated by the account party.
b. Function: To substitute the credit of a recognized international bank for that of the buyer.
c. The parties:
1) The buyer is the account party.
2) The buyer’s bank is the issuing bank.
3) The seller is the beneficiary.
d. Types of Letters of Credit:
1) Irrevocable: Cannot be altered without the beneficiary’s express consent.
a) Preferred by beneficiaries because it provides the most security.
2) Revocable: Revocable by the issuing bank.
a) Disliked by beneficiaries because it provides the least security.
3) Confirmed: A second bank adds its endorsement to the credit, indicating that it too will make payment against the specified documents.
a) Gives the beneficiary additional assurance that payment will be made.
3. Governing Law:
a. International Chamber of Commerce’s Uniform Customs and Practices for Documentary Credits (UCP) governs virtually all international letter of credit transactions.
1) Most banks incorporate the UCP in the terms of the credits they issue.
4. Applying for a Letter of Credit
a. Applicant must have an existing relationship with a bank.