ICC Digital Library Forum

Are drafts always called for under a negotiation credit or to put it in another way, could a bank issue a negotiation credit without calling for drafts?

We received a negotiation credit issued in SWIFT format but it was silent on drawee & drafts, hence our enquiry. We are taught that there are always drafts involved in negotiation credits.

Thank you.
[edited 10/23/01 1:48:30 PM]

I would observe sub-Article 9a states:

‘a. An irrevocable Credit constitutes a definite undertaking of the Issuing Bank ……

iv. if the Credit provides for negotiation – to pay without recourse to drawers and/or bona fide holders, Draft(s) drawn by the Beneficiary and/OR document(s) presented under the Credit.’ [emphasis added]

While I can see at least one argument that this is not conclusive, the fact remains that there is not any express requirement in UCP500 for credits -that are expressed to be available by negotiation- to specify the presentation of drafts.

However, where drafts are not required under a credit expressed to be available by negotiation, the credit should otherwise make clear when it is payable by the issuing bank, i.e. ‘at sight’ or on a determinable future date.

[edited 10/23/01 3:42:57 PM: afterthought]

BILL OF LADING IS ALSO AN "NEGOTIABLE" INSTRUMENT

A bank may negotiate a negotiable bill of lading, which, like a draft, is ALSO an negotiable instrument.

NEGOTIATION SHOULD NOT BE LIMITED ONLY TO DRAFTS

So, just for academic argument sake, negotiation should not be imited only to drafts, although we understand that it is the international banking practice to provide drafts for an negotiable DC.

WHAT WOULD HAPPEN IN E-COMMERCE?

If we go for e-commerce, payment would be directly from the issuing bank, and there may be few, if not no, negotiating banks.

From our involving in the ICC Electronic Commercial Practice, we understand that the legal community has not yet resolved the problem of "How to bring the paper based negotiation and draft concepts into the cyberworld?". So we may not have a thing caled e-draft as it may simply not exist.

http://www.tolee.com

[edited 10/23/01 5:11:48 PM]