Lecture 12 FINANCING Topics covered: Scope of International Financing Bills of Exchange Promissory Notes Negotiability of Bills and Notes Negotiation and Transfer of Bills and Notes The Role of Banks Letters of Credit

A. SCOPE OF INTERNATIONAL FINANCING The Financing of Foreign Trade: Involves the underwriting, paying and collecting of money for the purchase of goods and services. Trade Documents: are used to facilitate the financing of foreign trade. Bills of Lading: documents of title that represent the goods being traded (discussed in Lecture 10). Bills of Exchange and Promissory Notes: documents used for transferring money from the buyer to the seller. Letters of Credit: documents used to guarantee the seller's delivery of goods and the buyer's delivery of money.

B. BILLS OF EXCHANGE Defined: A bill of exchange (or draft) is — A written, dated and signed instrument. Containing an unconditional order. From drawer. Directing drawee. To pay a payee. A definite sum of money. With payment to be made. On demand, or At a specified future date.

B. BILLS OF EXCHANGE Bills of Exchange are Negotiable Instruments “Negotiable” means: the drawer cannot refuse to pay a proper holder because — The underlying contract was improperly performed, or The instrument was improperly entered into. Importance: Bills of exchange are more readily salable and, therefore, useful financial tools.

JUDGE JUDY READY TO RULE-- Case: Mair v. Bank of Nova Scotia: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

B. BILLS OF EXCHANGE The Laws Governing Bills of Exchange Anglo-American laws: English Bills of Exchange Act (BEA) of 1882. Applicable in UK and commonwealth countries. United States Uniform Commercial Code (UCC). Adopted in all US states except Louisiana.

B. BILLS OF EXCHANGE The Laws Governing Bills of Exchange (continued) Model laws applicable in the rest of the world: Uniform Law on Bills of Exchange and Promissory Notes (ULB) of 1930. Uniform Law for Checks (ULC) adopted in 1931.

B. BILLS OF EXCHANGE The “Form” of Bills of Exchange BEA and UCC requirements: In writing. Payable either to order or to bearer. No. 693 11-95/980 22 Nov. 2003 Pay to the Order of       Sandra Smith                    $ 100.oo            One Hundred and oo/100                     Dollars Bank of the River 100 Hudson Ave. New York, NY 02167 123456789-09876543    _______________________

B. BILLS OF EXCHANGE The “Form” of Bills of Exchange (continued) ULB requirements: In writing. Payable either to order or to bearer. Contain the term "bill of exchange" (or an equivalent term) in — The body, and The language of the check.

B. BILLS OF EXCHANGE The “Form” of Bills of Exchange (continued) ULB requirements (continued): State the place where the bill is drawn. State the place where payment is to be made. Be dated. Check 2 November 2003 at Paris, France This check is to be Paid to the Order of          Sandra Smith           € 500.oo                 Five Hundred and oo/100                       Euros by the Ex-Patriot Bank at 100 Cours Alber 1er 75008 Paris, France 09876543-123456789 ________________________

B. BILLS OF EXCHANGE Types of Bills of Exchange Time bill: Drawee must pay at a definite future time. Sight (or demand) bill: Drawee must pay either when — The holder presents the bill for payment, or Within a stated time-period after presentment.

B. BILLS OF EXCHANGE Types of Bills of Exchange (continued) Trade acceptances: Drawee is one who bought goods from the drawer and owes the sale price to the drawer. Drawee is a credit buyer. Drawer is also the payee. May be a time or sight bill.

B. BILLS OF EXCHANGE Types of Bills of Exchange (continued) Checks: Drawee is holding money on account for drawer. Drawee is a bank. Checks are always payable on demand.

C. PROMISSORY NOTES Defined: A promissory note (or simply a “note”) is A written promise. To pay a determinate sum of money. Made between two parties. Maker: The issuer of a promissory note. Payee: The person to whom the note is to be paid. 

C. PROMISSORY NOTES 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 Governing Law: Same as those that apply to bills of exchange

D. NEGOTIABILITY OF BILLS AND NOTES Requirements of Negotiability Be in the proper form, and Contain the following promissory elements: State an unconditional promise or order to pay. State a definite sum of money or a monetary unit of account.

D. NEGOTIABILITY OF BILLS AND NOTES State a definite sum of money or a monetary unit of account (continued) Money: “a medium of exchange authorized or adopted by a domestic or foreign government as part of its currency.” Monetary Unit of Account: “a medium of exchange established by an intergovernmental organization or by an agreement between two or more nations.” Definite Sum: the sum to be paid must be ascertainable from the bill or note itself without reference to any outside source.

D. NEGOTIABILITY OF BILLS AND NOTES Requirements of Negotiability (continued) Contain the following promissory elements: Be payable on demand or at a definite time. Be signed by the maker or drawer. Signature: “Any symbol executed or adopted by a party with present intention to authenticate a writing.”

E. THE NEGOTIATION AND TRANSFER OF BILLS AND NOTES Assignment: The transfer of rights under a contract The assignee acquires only those rights that the assignor possessed. Any objections to honoring the assigned obligations that could be raised against the assignor can be raised against the assignee.

E. THE NEGOTIATION AND TRANSFER OF BILLS AND NOTES Negotiation: The transfer or a bill or note in such a way that the recipient becomes a holder Negotiating order paper. Order paper: A bill or note payable to a named payee. Negotiated by endorsement and delivery. Negotiating bearer paper. Bearer paper: A bill or note payable to the bearer or to cash. Negotiated by delivery.

JUDGE JUDY READY TO RULE-- Case: Far East Realty Investment v. Court of Appeals: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

JUDGE JUDY READY TO RULE-- Case: Trans Trust Sprl. v. Danubian Trading Co.: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

Clause of the Week Force Majeure Clause