Dear all,
Lont time no see. How have you been doing?
A draft payable to the order to ourselves (beneficiary under LC). But there is no bank provides financing. So the draft will be forwarded directly to the issuing bank. Supposing the drawee is also issuing bank. I wanna know whether the beneficiary needs to endorse this draft to the issuing bank.
Your comments appreciated.
Best regards
Ofei
whether draft needs endorsement
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nesarul
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endorsement
Dear,
From My point of view no further endorsement is required.
regards
nesar
From My point of view no further endorsement is required.
regards
nesar
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jim
- Posts: 91
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explain please
dear sir,nesarul wrote:Dear,
From My point of view no further endorsement is required.
regards
nesar
could u please explain the issue; i mean the logical reasoning so that we can explain it to our customers. thanks in advance
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ofei
- Posts: 93
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drafts need to be endorsed
Thanks for Nesarul.
I have considered this issue over and over again. At last, I still think drafts need to be endorsed provided it is payable to order.
My original quesiton contains a flaw, I am sorry for that. Let me make it clear. Under LC, the bene issues drafts, and he may also make himself be the payee. Thus the drafts are payable to the order of ourselves. And the drafts are also forwarded to issuing bank through presenting bank. ( I failed to focus this).
Now, let's first read UCC stipulations.
§ 3-201. NEGOTIATION.
(a) "Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.
§ 3-204. INDORSEMENT.
(a) "Indorsement" means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument,.....
Now, focus on the wording "possession", no matter whether a bank provides financing to the bene(drawer). Since drafts will be forwarded by this bank, he needs to be holder of the drafts (not holder in due course). Then the bene needs to endorse to the bank.
Again, let's read Bill of Exchange Act 1882.
31 Negotiation of bill(1)A bill is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder of the bill.
(2)A bill payable to bearer is negotiated by delivery.
(3)A bill payable to order is negotiated by the indorsement of the holder completed by delivery.
Obviously, the bene still needs to made endorsment under the above circumstance to make the bank (no financing provided) hold the drafts.
Another proof I searched from the internet is shown as below. (also see http://chestofbooks.com/finance/banking ... ement.html)
This section is from the book "Canadian Banking Practice", by John T. P. Knight.
Question 142. - Bank A sent a demand draft made payable to their own order and not endorsed by them to bank B for collection. Bank B presented to drawees who accepted draft payable at bank C, to whom it was duly presented and accepted, but was refused by them when sent in on deposit and marked "not endorsed." Bank B claims that drawees when they accepted the draft took the responsibility of its not being endorsed and that bank C could not refuse payment, having already accepted it. Bank C claims it was only an order to pay when endorsed and in order, the same as a cheque, and that their acceptance stamp only signified that they held funds. Which bank is correct?
Answer. - Bank C is right; they would not be justified in paying without endorsement, and their certification could not be taken to mean more than that they would pay the item when it was completed by endorsement.
In one word, drafts need to be endorsed even there is no nominated bank providing financing.
Look forward to your comments.
PS:I also noticed that there was discussion about the same issue.For example http://www.letterofcreditforum.com/cont ... ndorsement. Seems there are lots of arguments.
Best regards
Ofei
I have considered this issue over and over again. At last, I still think drafts need to be endorsed provided it is payable to order.
My original quesiton contains a flaw, I am sorry for that. Let me make it clear. Under LC, the bene issues drafts, and he may also make himself be the payee. Thus the drafts are payable to the order of ourselves. And the drafts are also forwarded to issuing bank through presenting bank. ( I failed to focus this).
Now, let's first read UCC stipulations.
§ 3-201. NEGOTIATION.
(a) "Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.
§ 3-204. INDORSEMENT.
(a) "Indorsement" means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument,.....
Now, focus on the wording "possession", no matter whether a bank provides financing to the bene(drawer). Since drafts will be forwarded by this bank, he needs to be holder of the drafts (not holder in due course). Then the bene needs to endorse to the bank.
Again, let's read Bill of Exchange Act 1882.
31 Negotiation of bill(1)A bill is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder of the bill.
(2)A bill payable to bearer is negotiated by delivery.
(3)A bill payable to order is negotiated by the indorsement of the holder completed by delivery.
Obviously, the bene still needs to made endorsment under the above circumstance to make the bank (no financing provided) hold the drafts.
Another proof I searched from the internet is shown as below. (also see http://chestofbooks.com/finance/banking ... ement.html)
This section is from the book "Canadian Banking Practice", by John T. P. Knight.
Question 142. - Bank A sent a demand draft made payable to their own order and not endorsed by them to bank B for collection. Bank B presented to drawees who accepted draft payable at bank C, to whom it was duly presented and accepted, but was refused by them when sent in on deposit and marked "not endorsed." Bank B claims that drawees when they accepted the draft took the responsibility of its not being endorsed and that bank C could not refuse payment, having already accepted it. Bank C claims it was only an order to pay when endorsed and in order, the same as a cheque, and that their acceptance stamp only signified that they held funds. Which bank is correct?
Answer. - Bank C is right; they would not be justified in paying without endorsement, and their certification could not be taken to mean more than that they would pay the item when it was completed by endorsement.
In one word, drafts need to be endorsed even there is no nominated bank providing financing.
Look forward to your comments.
PS:I also noticed that there was discussion about the same issue.For example http://www.letterofcreditforum.com/cont ... ndorsement. Seems there are lots of arguments.
Best regards
Ofei
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shahriar
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confused...
Hi dear Ofei... loooooooong time... good to see you back.
well about the draft issue... it always makes me confused. but i dont think that the draft is required to be endorsed. i understand this in this way -
when the drawer endorse the draft, its transferring its right to receive payment to the endorsee. if the nominated bank negotiates, the beneficiary endorse the draft to the order of negotiating bank. if there is no negotiating bank, then there is no need to transfer the right.
the issuing bank is the drawer of this draft. how can a drawer can also become the payee of the draft?
not sure how much clear i am. comments appreciated
well about the draft issue... it always makes me confused. but i dont think that the draft is required to be endorsed. i understand this in this way -
when the drawer endorse the draft, its transferring its right to receive payment to the endorsee. if the nominated bank negotiates, the beneficiary endorse the draft to the order of negotiating bank. if there is no negotiating bank, then there is no need to transfer the right.
the issuing bank is the drawer of this draft. how can a drawer can also become the payee of the draft?
not sure how much clear i am. comments appreciated
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ofei
- Posts: 93
- Joined: Tue Oct 28, 2008 8:51 am
drawer can be the payee as well
Dear shahriar,
Pretty busy for domestic websites and my articles. So you see it's really long time not coming here.
As to the draft issue. Let me explain it again.
Under LC, the beneficiary(drawer) issues drafts, he can also be the payee if he makes the drafts payable to the order of ourselves. In fact, this is very common in LC and collection transactions.
The issuing bank may be the drawee instead of payee here.
What I wanna experss is the beneficiary gives documents including drafts to a presenting bank. So he needs to endorse drafts to enable the presenting bank become a holder of drafts. Then the presenting bank forwards whole documents including drafts to issuing bank(drawee) for payment. Under such circumstance, the presenting bank needs not make endorsement, but the bene must do so.
I hope this helpful.
Best regards
Ofei
Pretty busy for domestic websites and my articles. So you see it's really long time not coming here.
As to the draft issue. Let me explain it again.
Under LC, the beneficiary(drawer) issues drafts, he can also be the payee if he makes the drafts payable to the order of ourselves. In fact, this is very common in LC and collection transactions.
The issuing bank may be the drawee instead of payee here.
What I wanna experss is the beneficiary gives documents including drafts to a presenting bank. So he needs to endorse drafts to enable the presenting bank become a holder of drafts. Then the presenting bank forwards whole documents including drafts to issuing bank(drawee) for payment. Under such circumstance, the presenting bank needs not make endorsement, but the bene must do so.
I hope this helpful.
Best regards
Ofei
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shahriar
- Posts: 923
- Joined: Fri May 16, 2008 1:03 am
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correction
dear ofei,
i made a stupid mistake.
anyway, got a clear view of your question now. hummmm... in my opinion since the presenting bank is not acting on its nomination, i found no reason to endorse the draft in its favor. the issuing bank will be paying the beneficiary, not the presenting bank. when you endorse the draft the draft to the order of presenting bank, it becomes the holder in due course which is in fact is not suppose to be the holder in due course.
as far as LC transaction is concerned, i really dont thing its going to affect the transaction.
comments appreciated.
i made a stupid mistake.
it should be drawee, not drawer.shahriar wrote:the issuing bank is the drawer of this draft. how can a drawer can also become the payee of the draft?
anyway, got a clear view of your question now. hummmm... in my opinion since the presenting bank is not acting on its nomination, i found no reason to endorse the draft in its favor. the issuing bank will be paying the beneficiary, not the presenting bank. when you endorse the draft the draft to the order of presenting bank, it becomes the holder in due course which is in fact is not suppose to be the holder in due course.
as far as LC transaction is concerned, i really dont thing its going to affect the transaction.
comments appreciated.
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ofei
- Posts: 93
- Joined: Tue Oct 28, 2008 8:51 am
holder vs holder in due course
Dear shahriar,
Please notice that I use "holder" rather than "holder in due course". No doubt that presenting bank is not a nominated bank. So he cannot become holder in due course. In practice, documents are usually forwarded through bank. So if the bene fails to endorse the drafts, will the issuing bank effect payment? You may find my anwer in previous post.
Best regards
Ofei
Please notice that I use "holder" rather than "holder in due course". No doubt that presenting bank is not a nominated bank. So he cannot become holder in due course. In practice, documents are usually forwarded through bank. So if the bene fails to endorse the drafts, will the issuing bank effect payment? You may find my anwer in previous post.
Best regards
Ofei