Documentary Credit and Promissory Note in International Trade: A Case Study
Case Study: Documentary Credit and Promissory Note in International Trade
Transaction Details
- Date of Delivery: June 23, 2014
- Loading Port: Port of Koper
- Port of Arrival/Destination: Port of Mar Sao Paolo
- Required Documents:
- Commercial Invoice
- Certificate of Origin
- Packing List
- Bill of Lading (Clean, Full Set, Blank Endorsed)
- Insurance Policy (Blank Endorsed)
Promissory Note
Face Value: 4,050,000 Euros
Tenor: May 6, 2014
Issuing Party: Ministry of Agriculture of Croatia, Zagreb
Payee: Mercantica Meccanica, Sao Paolo
Endorsement:
- Endorser: Mercantica Meccanica, Sao Paolo
- Endorsee: Banco Paribas AV pres…
Documentary Credit
Issuing Bank: UniCredit Bank Zagreb (Buyer’s Bank)
Confirming Bank: Banco Paribas
Applicant: Ministry of Agriculture of Croatia
Beneficiary: Mercantica Meccanica, Sao Paolo
Key Questions and Answers
1. What is the legal nature of a documentary credit?
A documentary credit is a contract subject to civil law and the ICC’s UCP 600, involving the issuing bank and the beneficiary (supplier).
2. What are the duties of the advising bank?
The advising bank verifies the authenticity of the documentary credit and forwards it to the beneficiary.
3. What does negotiation in a documentary credit mean?
Before the payment deadline, after examining and accepting documents, a bank may advance payment to the beneficiary. In a freely negotiable documentary credit, any bank may advance payment if the issuing bank is creditworthy.
4. What law applies to the documentary credit?
The law of the country where the issuing bank is located (Croatian law in this case).
5. Who pays the banking charges for the documentary credit?
The buyer (Ministry of Agriculture of Croatia).
6. Why should the documents of title be blank endorsed?
They serve as securities in the hands of the issuing bank and are blank endorsed to avoid naming the bank as the owner.
7. What law applies to the promissory note?
Croatian law (place of issuance).
8. What does the principle of “with recourse” mean?
The bank (Banco Paribas) has the right to reclaim the price paid from the main obligors if the promissory note is not honored.
Conclusion
This case study illustrates the use of a documentary credit and a promissory note in an international trade transaction. It highlights the roles of various parties, applicable laws, and key principles involved in such transactions.