Bill of exchange and promissory note

Legal sources regulating the circulation of B/E- National Law+ The Bills of Exchange Act 1882 BEA 1882: The United Kingdom sets out thislaw in detail the requirements for the form of a b

FACULTY OF INTERNATIONAL ECONOMIC RELATIONS

MID TERM REPORT

INTERNATIONAL PAYMENT

BILL OF EXCHANGE AND PROMISSORY NOTE

Lecturer : Nguyen Thi Quynh Nga

Class code : 231NH0401

Nguyen Ngoc Thao Nguyen K214020180

Ho Chi Minh city, 14 October 2023

TABLE OF CONTENTS

Section I BILL OF EXCHANGE 1

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Bill of Exchange have had a long history Initially, there were only “promissory note”created by debtors and given to creditors as documents committing to paying thecorresponding value at a different location using the currency accepted there By the 16thcentury, “bill of exchange” emerged as documents created by creditors sent to debtors,requesting payment From that point, they became widely used as means of payment andcredit in domestic trade within each country and in international trade.

1.1 Legal sources regulating the circulation of B/E

- National Law

+ The Bills of Exchange Act 1882 (BEA 1882): The United Kingdom sets out thislaw in detail the requirements for the form of a bill of exchange and accordingly should

be consulted prior to any detailed consideration of a bill of exchange

+ The Uniform Commercial Code of 1962 (UCC): This is a collection of proposed

model laws, drafted by the American Law Institute and the National Conference ofCommissioners on Uniform State Laws, that are meant to serve as a guide for statelegislatures when they draft statutes involving commercial contracts and related dealings.+ Law on Negotiable Instruments 2005: This Law applies to Vietnameseorganizations and individuals; foreign organizations and individuals participating innegotiable instrument relations in Vietnam, regulating negotiable instrument relationships

in issuance, acceptance, guarantee, negotiation, pledge, collection, payment, recourse,

world Today, the Uniform Bills of Exchange Act 1930 is in force in all European nations(except the UK) Many other countries, although not participating in the GenevaConvention, still build their Bills of Exchange Laws compatible with the ULB 1930

- International Law

+ It is the combination of national law and regional law

+ This type of law is rarely applied, which is only used for reference

1.2 Definition

The countries participating in the 1930 Geneva Convention could not reach a consensus

to define a bill of exchange, so the regulation adopted the BEA 1882 as the definition of abill of exchange

A “bill of exchange” is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed determinable future time a sum certain in money to or to the order of a specified person, or to bearer

Each of these elements needs explanation:

(1) “unconditional” means that no conditions are allowed (i.e a bill with a clause “Ifthe goods are shipped by October 14, the payment will be made” is not a valid bill

of exchange)

(2) “in writing” included hand-writing, typewriter, and printing

(3) “in addressed by one person” refers to a drawer

(4) “to another” refers to the drawee who is to make payment

(5) “on demand or at at a fixed determinable future time” means either:

to pay immediately (to pay at sight)

to pay at a fixed future time (i.e pay on November 1)

to pay at a determinable future time (i.e 60 days after the date ofdrawing the bill)

(6) “a sum certain of money” means that the amount is payable in the form of moneyrather than a commodity or any other means (e.g a sum of $10,000 in money)(7) “to or to the order of a specified person or to bearer” means that the payee isstated in either:

to a specified person (i.e “to X Co Ltd ”)

to the order of a specified person (i.e “to the order of X Co Ltd”

to a bearer (i.e “to a bearer” or to <blank>)

According to the BEA 1882, a bill is not invalid by reasons:

Bills of exchange are also useful in international trade because they help buyers andsellers deal with the risks associated with exchange rate fluctuations and differences inlegal jurisdictions

1.3 Parties

- Drawer: The drawer is the maker of the bill They draw or writes the bill and they signthe bill Although a bill can be accepted before receiving the drawer's signature, theirsignature is required to complete the document The drawer is not necessarily the firstbeneficiary but is responsible for paying the final payment to the beneficiary if the bill ofexchange is refused payment by the drawee

+ Right: to benefit from the amount stated on the bill of exchange; to transfer thebill of exchange to another person by endorsement; to be noted and protested if unpaid ornot accepted.

+ Obligation: In case the bill of exchange is dishonored, the person who issues thebill of exchange is responsible for returning the money to the beneficiary

- Drawee/Acceptor: The drawee is the person upon whom a bill of exchange is drawn, orthe drawee is the person who accepts the bill and promises to pay the amount When thedrawee accepts the bill, he becomes the acceptor

+ Right: to refuse payment if the bill of exchange is found to be invalid or if youfeel that your rights have been violated (the amount on the bill of exchange does notmatch the value to be paid)

+ Obligation: to check the validity of the bill of exchange before payment (e.g.legal signature of the drawer); to pay according to the provisions (i.e according to section

17 BEA 1882, the drawee has no liability on a bill of exchange itself until they accept thebill, becoming an acceptor who is primarily liable to pay); to sign and accept payment ofthe bill of exchange upon seeing the bill of exchange if it is not a sight bill of exchange

- Beneficiary: is the legal owner of the bill of exchange, and therefore has the right toreceive payment of the amount stated on the bill of exchange Depending on thecircumstances, the beneficiary may be: the drawer, banks or someone designated by thedrawer If the drawer keeps the bill with themselves until the due date and receives theamount of the bill, then the drawer and beneficiary both are the same person

+ Right: to receive payment and transfer the right to benefit to others; to requestpayment from the drawer if the bill of exchange is invalid; to complain before the law ifthe bill of exchange is valid but not paid

+ Obligation: to check the validity of the bill of exchange; to present the bill ofexchange for payment at the designated place

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Fig 1 Bill of exchange flow.

- Endorser: The person who benefits from the bill of exchange gives up ownership of thatbill of exchange to another person by endorsement The first person with the right totransfer is the seller

- Holder in due course: A person or business that has acquired the bill of exchange forvalue and in good faith The main duty of a holder is to present a bill promptly foracceptance and/or payment and to note and protest in case of non-acceptance or non-payment, which must be immediately notified to the drawer or endorser to retain therecourse right

- Drawee in case of need: When in the bill or in any indorsement thereon the name of anyperson is given in additional to the drawee to be resorted to in case of need, such person

is called a “drawee in case of need.” (The Negotiable Instruments Act, 1881)

1.4 Characteristics

- Abstractness: the bill of exchange does not need to show the credit relationship betweenthe drawer and the drawee A bill of exchange is a separate and independent instrumentfrom the underlying contract or transaction (e.g a sale contract) for which it is created Inother words, it can exist and be transferred independently of the original transaction or

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the goods/services it represents This abstractness allows for flexibility in using the bill ofexchange as a means of payment, as it can circulate through various parties.

- Mandatory: A bill of exchange is an unconditional order to pay, not a demand forpayment Therefore, it is required that the person responsible for paying must pay the fullamount according to the deadline specified in the bill of exchange and must not refuse,delay or give reasons for not paying, except in cases where the bill of exchange is invalid

- Convertibility: A bill of exchange is a negotiable instrument, and it is typicallytransferable from one party to another within a certain period through endorsement(signing on the back of the bill) and delivery This means that the holder of the bill cantransfer their rights to receive payment to another party by endorsing the bill, effectivelymaking it payable to the new holder This feature enhances the bill's liquidity and ease ofuse in trade and commerce

1.5 Classifications

1.5.1 In terms of time of payment

- At sight Bill of Exchange: is a type of bill of exchange that requires the drawee to paythe holder as soon as he sees the bill In international trade, a sight draft allows anexporter to hold title to the exported goods until the importer takes delivery andimmediately pays for them

- Time or Usance Bill of Exchange: A time draft gives the importer a short amount of time

to pay the exporter for the goods after receiving them The drawer of the bill of exchangecan stipulate the time limit for payment of the bill of exchange in the following ways:+ pay at a specific date in the future (i.e pay on November 1)

+ pay after a certain period of time from the date of drawing the bill of exchange(i.e 60 days after the date of drawing the bill)

+ pay after 1 certain period from the date of delivery;

- Clean Bill of Exchange: is a type of bill of exchange in which payment is notaccompanied by commercial documents (goods documents) It is also used under themethods like Open account or Clean collection.

- Documentary Bill of Exchange: is a type of bill of exchange accompanied bycommercial documents The payer must pay the bill of exchange or sign an acceptance ofpayment on the bill of exchange before receiving commercial documents

1.5.3 In terms of convertibility

- Nominal Bill: A type of bill of exchange that clearly states the name of the beneficiary

It means that only the beneficiary can receive the payment and cannot transfer to otherpeople by endorsement

- Order Bill: is a bill of exchange with the words "pay to the order of " (pay to the order

of ), this bill of exchange is transferable in the form of endorsement, so it is commonlyused in payments

- Bearer/ Nameless Bill: A type of bill of exchange that does not have the beneficiary's

name written on the front of the bill, but is only returned to the holder For this type ofbill of exchange, whoever holds it will be the beneficiary This type is freely transferablefrom one to another

1.5.4 In terms of drawer

- Bank draft: A bill of exchange issued by the bank ordering the correspondent bank topay a certain amount of money to the beneficiary specified on the bill (bank draft cannot

be transferable)

- Commercial draft: Drawn by the exporter, the lender demanding money from the

importer or the bank opening the L/C

1.5.5 In terms of acceptance status

- Non-accepted Bill of Exchange: This is a bill of exchange that has not been signed andaccepted by the drawee (payer) Because the drawee has not yet signed the acceptance,the drawee is not bound to pay the bill of exchange However, if he refuses to pay orrefuse to sign the acceptance, if it is against the law, the drawee can be sued court Whenthe bill of exchange has not been signed for acceptance, then the drawer is obliged to paythe holder.

- Accepted Bill of Exchange: After signing and accepting the bill of exchange, the drawee

is immediately bound to pay the bill of exchange when due This bill of exchange isdivided into two types: trade’s acceptance and bank’s acceptance

1.6 Main contents

Fig 2 Samples of bill of exchange in international trade.

A bill of exchange contains:

(1) Title: Bill of Exchange/ Exchange/ Draft

(2) Bill of exchange No

(3) Date of issue: not earlier than the invoice date and within the validity of L/C.(4) Place of issue: in the country of the issuer of the bill of exchange (exporter).(5) Amount of bill

If the amount written in numbers and words is different, according tointernational practice, it is allowed to choose the amount written inwords for payment

If the amount is written all in numbers (words) but is not suitable, it isallowed to choose a smaller amount to pay

(6) Maturity date

(7) – (8) Two bills are issued

(9) Payee/Beneficiary

Named bill: Pay to ABC Bank

Order bill: Pay to the order of Bank ABC; Pay to ABC Bank or orderBearer bill: Pay to bearer; Pay to <blank>

(10) Bill of exchange can be used as a receipt that the payee received the payment(11) Accountee (account party)

(12) – (14) Underlying contract

(15) Drawee

(16) Drawer: The signature of the drawer to be effective must be the signature of a person with full legal capacity and capacity

Fig 4: Bill of exchange used in L/C.

- A bill of exchange must be a document, drawn up in the form of a document According

to the laws of other countries in general, bills of exchange can be handwritten, typed, printed still have the same value

pre Do not write on the bill of exchange with pencil, easily fading ink, or red ink

- The language used to fill in the blank paragraphs must be consistent with the languagepre-printed on the bill of exchange, except for the names of litigants and names of places

if they cannot be transcribed or translated

- The bill of exchange is usually issued in sets to prevent loss or damage, usually two (2)copies, each numbered and of equal value Thus, the payer can choose any one of thosecopies to pay Once one copy has been paid, the remaining copies will be invalid

- Bill of exchange does not have an original or supplementary copy

1.8 Circulation

1.8.1 Acceptance

Acceptance of a bill of exchange is a form of confirmation of the payment guarantee ofthe person paying the bill of exchange Acceptance is the commitment of the drawee tothe payment of the entire or one part of the money amount stated in the bill of exchange

in accordance with the provisions of this Law (Law on Negotiable Instruments 2005)

- Form and contents

+ May accept entire or partial amounts of B/E, but without adding any conditions.+ Must state clearly the accepted amount

+ Acceptor must be drawee (importer or issuing bank)

+ State the date of acceptance: optional or mandatary

+ Accept before due date of B/E