Lecture Outline

1. Follow up from the Lecture 3

2. Lecture 4: Chapter 6.Transportation documents and
means of payment
3. Practice
4.Q&A
Follow up Lecture 3
Case study: International trade
https://www.youtube.com/watch?v=HfN8BnRJryQ

Quick question to discuss:

1. What is a difference between Offer & Counter Offer?
2. What is buyer obligations?
3. What is seller obligations?
5. Who can explain this diagram?

Ratification of Convention

Party A: Buyer Sending Party B: Seller

Offer

Acceptance of
Offer or Counter-
Offer

Contract
Party A: Buyer Party B: Seller
(written or oral

Transfer of
Goods +payment

Contract
termination
Case Study: Sales Contract
Suppose Company A (buyer) signed agreement with Company B
(seller) on purchasing 1000 computers at $100. However, the
Company A (buyer) receive 10 computers with some not significant
damages and 90 properly working computers.

Questions:
Q1.What is a contract price?
Q2. What is the actual amount of the payment to be paid in
connection with the damage?
Q3. How can Company A (buyer) resolve the issue of damages?
Q4. What steps are needed?
Case Study: Sales Contract
Q1.What is a contract price?
Solution: $100 000
Q2. What is the actual amount of the payment to be paid in connection with
the damage?
Solution: $ 90 000

Q3. How can Company A (buyer) resolve the issue of damages?

What steps are needed?
Solution:
Step 1. Company A (buyer) should notify Company B (seller) about the
damages
Step 2: Option 1 request to repair damaged computers or Option 2 request
a decrease of price
Lecture 4: Chapter 6
Goods shipment process

Shipper
Seller Carrier Buyer
(Delivery Agent)

Goods

The risk passes to the buyer when the goods passed to carrier.

BILL OF LADING*

*Bill of lading is documents which are issued by a carrier to a seller (or agent) acknowledging
that the carrier has received the goods and that they have been placed on board a particular
vessel bound for a particular location.
Lecture 4: Chapter 6

DELIVERY

BILL OF LADING

THROUGH BILL OF
INLAND BILL OF LADING OCEAN BILL OF LADING a LADING
contract for carriage contract for carriage from mix of “inland & “ocean AIRWAY BILL
overland to the a port in the seller’s state bill to transport goods a contract for carriage of
international departure to a specified port in from point of manufacture goods by air
point another state to specified port in
buyer’s state

Negotiable Non-negotiable
• is made out in favor of the seller the bill is made out in favor
• the carrier therefore holds the goods on behalf of the of the buyer to whom the
seller carrier must deliver the
• the seller will present the bill to a bank to obtain payment good
• seller signs a bill & transfers title to the goods
Lecture 4: Chapter 6

Payment

International Local

International Bill of exchange Cash, cheque,

Bank Transfers- /promissory Letter of credit Letter of comfort automatic
credit transfers note clearing

Kaskelen 2024
Lecture 4: Chapter 6
INTERNATIONAL BANK TRANFER PROCESS (electronic)
Sender
(Company A-
Defined as
buyer)
“Originator”

Sender’s Payment order sent

bank Funds transferred
Intermediary UNCITRAL MODEL
bank LAW ON
Receiving INTERNATIONAL
Bank CREDIT TRANSFERS
Payment order executed
Funds transferred
Beneficiary's
Bank

Place funds at the

Beneficiary disposal of Company B
(Company B-
seller)
Lecture: Chapter 6

Obligations of parties
SENDER: RECEIVING BANK:
• Initiate a payment order • Receive funds
• Avoid an Unauthorized payment • Accept & Execute payment order
orders (if everything is correct) to
transfer funds to the beneficiary’s
• Shall be responsible for the account (receiving party)
correctness of payment details
• Reject payment order & return
• Have enough credit balance funds (if something wrong:
• Bilateral netting agreement insufficient data, defective,
inconsistent info)

ANY BANK DELAYING A PAYMENT SHALL COMPENSATE THE BENEFICIARY & PAY
CERTAIN AMOUNT OF INTEREST TO THE BENEFICIARY OR SENDER
 Lecture 4: Chapter 6
Bill of exchange (cheque)
Is an unconditional order in writing addressed by one person
(drawer) to another (drawee) to pay a definite sum of money to
the payee or to their order, which is signed by the person giving it
and can be paid on demand, or of a fixed or determinable future
time

PARTIES IN
BILLS OF
EXCHANGE

ACCEPTOR ENDORSER ENDORSEE HOLDER

DRAWER DRAWEE PAYEE
The drawee who The payee signs the bill 3rd party that GUARANTOR
owes money to the drawer’s The creditor of Is a last
signs to transfer the payment receives bill a person who guarantees that
the payee bank drawer endorsee
“Accepted” to another person from Endorser the bill will be honoured)
Lecture 4: Chapter 6

Dishonour for non-payment

a) If payment is refused upon due
presentation or if the holder cannot obtain Protesting the bill for dishonor
the payment to which they are entitled
A protest is a statement of dishonour drawn up
b) If presentation for payment is dispensed
at the place where the bill has been dishonoured
with and the instrument is unpaid at
maturity If a bill is dishonoured by non- and signed and dated by a person authorised in
payment, the holder may, subject to the that respect by the law of that place.
rules on protests, exercise a right of
recourse against the endorsers and their Notice of dishonour operates for the benefit of
guarantors. any party who has a right of recourse on the
instrument against the party notified.
 Lecture 4: Chapter 6
LETTER OF CREDIT is payment method that gives the
seller risk-free & immediate method of obtaining the
payment for goods Mechanism
1. B asks BB to issue a letter of credit in favor
of S
2. by the issue, BB is guaranteeing that S will
be paid
3. BB asks SB to advise S that a letter of credit
has been issued
4. SB agrees to handle their end of the process
5. S produces to SB proof of delivery / transfer
of the goods
6. SB pays S, and forwards the documents to
BB
7. BB checks the documents, and pays SB
8. BB debits B’s account, and hands the
documents over to B
B is buyer, S is seller,
BB is buyer’s bank or the SB is seller’s bank or the
issuing bank, advising bank
 Lecture 4: LETTER OF CREDIT

BACK-TO-BACK
REVOCABLE REVOLVING
CONFIRMED allows the seller to use the VALUE REVOLVING
a buyer may change the details Open at all times & may be
Bank adds its guarantee buyer’s LC as security to issue a Reinstated after the amount is
wi/t notifying the seller revolved automatically or under
2nd LC from him as buyer to the used up
certain conditions
original supplier or seller.

IRREVOCABLE TRANSFERABLE TIME REVOLVING

UNCONFIRMED
buyer cannot amend the details Allows seller right to receive Reinstated for the next shipment
Bank doesn’t add its guarantee
w/t notifying the seller payment for 3rd party (supplier) until the amount of LC is used up
Lecture 4: chapter 6
LETTER OF COMFORT (guarantee letter)
 apply to situations involving a group of companies
 typically, a letter of comfort will be written by a parent / holding company indicating
its intention to continue to support its subsidiary
 most commonly applicable where the subsidiary is insolvent or is trying to raise
finance
 but normally it is just a comfort
 rarely does such a letter bind the parent so, if the subsidiary in fact does become
insolvent, there is no liability for the parent to settle the subsidiary’s obligations

Letter of Comfort
https://www.youtube.com/watch?v=P-cLQ_2E5jU
Lecture 4: chapter 6
COMPARATIVE OF PAYMENT TYPES
International Bank Bills of exchange Letter of Credit Letters of Comfort
Transfers

ADV a) straightforward to a) convenient method of collecting payments from a) helpful when a) helpful when there
arrange and carry out buyers in a different state. the risk of non- is a risk of
b) The seller can seek immediate finance
b) They are contained payment is high insolvency of
c) On payment, the foreign buyer keeps the bill as
within the systems of the evidence of payment, so that a bill of exchange also b) helpful with buyer
bank as they are carried serves as a receipt. unknown
out electronically and do d) Ease of transferability/wider acceptance buyers &
not require reliance on e) If a bill of exchange is dishonoured, it may be used dealing for the
any other systems, such by the drawer to pursue payment by means of legal 1st time
action in the drawee's country.
as the postal system f) The buyer's bank might add its name to a bill to
indicate that it guarantees payment at maturity.
DISADV a) fraudulent payments a) More applied for short-term contracts than long term a) Slow to arrange a) there is no liability
b) authentication contracts for the parent to
procedures settle the
c) cancellation period subsidiary’s
obligations