Understanding Letters of Credit: Ratings, Forms, and Acts
Letters of Credit Ratings
About the Model: Free (letter and note) and bound (check and duplicate).
The Form: Order (letter, check, and duplicate) (three characters: the drawer, drawee, and payee) and promise to pay (note) (two characters: the prospective and beneficiary).
Assumptions as to Issue: Causal (duplicate – Stay connected to the business that originated) and non-causal (letter (abstract), notes, and checks).
On Movement: Bearer (circulated by mere tradition) or nominative (endorsement) (order and not to order).
! WARNING! CC, Art. 921 – no bills of this kind currently in Brazil.
Relationship Between the Code and Civil Laws: Open and sparely.
CC as supplementary standard: CC, art. 903.
Acts Cambiários:
1 – Serve Issue
Is the act of creation (emission) of the security. The service is also called emission.
Characters: Drawer (who issues the TC) x drawn (against whom the order was issued, the Bank example) x TAKER (1 recipient).
“Drawee” exists only in money orders – letter, check, duplicate.
2 – Accept
Concept: Is the act by which the drawee manifest (voluntarily) to agree to comply with the payment order given by the server.
Volunteer for the drawee is not obliged to obey the order. If you do not comply there will be no legal consequences against him.
An act that exists only in the “orders” – letter, check, duplicate. The acceptance must be expressed (principle of literalness).
There is no accepted if the title is due in sight. The borrower has withdrawn the demand for payment, and not to accept. Either he pays or refuses to do so.
There is the accepted “promises to pay” – Example: a promissory note, because this is not the figure of the drawee.
- Free act – the drawee is not obliged to accept the order;
- Legally, the drawee may refuse the order, it is lawful act;
- Economically, there may be repercussions in trade relations between the drawer and drawee – but that is not by refusing to be an illegal act!
- EARLY MATURITY generates the refusal against the drawer! If the drawee refuses to accept it, is the acceleration of the title.
- Refusal may be total or partial:
- Total – is paid the full value of CT.
- Partial – You pay a portion of the TC.
- Accepted limiting – agree to pay a portion of the value. It is limited to the amount to be paid.
- Accept amendment – agree to pay the value, but under different conditions (eg, within a larger, different location, with lower interest).
Before accepted: drawer = primary obligor; If the drawee does not accept, the principal is required the server.
After acceptance: primary = drawn thank you: Once expressed accepted, the drawee becomes the principal debtor.
Having accepted, the borrower must first collect the withdrawn, only by the refusal shall be entitled to collect from the other liable.
Place to express accepted:
- front of the title (front) – just the simple signature (this is the rule);
- back – accompanied by the signature phrase “accepted” (or equivalent)
3 – Endorsement
Concept: Act which operates the transmission of the security.
Legal business “cousin” of the credit assignment, in civil law.
Partial endorsement is NULL, can not.
Conditional endorsement is valid – but the condition is inserted ineffective – it is considered that there was simply an endorsement without conditions.
The endorsement is given in nominative (the recipient is indicated) to order (accepts the endorsement).
Bearer bonds – mere tradition, do not indicate who the beneficiary (not nominative). Waiving the endorsement, as circulated by simple tradition.
Nominative not to order – civil assignment of credit, do not admit the endorsement.
Characters: Endorser (acts beneficiary transfers to another TC) x endorsee (new recipient)