Best Trade Solution

Hi Everyone,

Please share your views regarding the following issues described on page 37 in the study text:

1. When an avalised draft or promissory note has been negotiated several times e.g 5 times, does it mean the holder can claim against ANY of the previous holders + the drawer, or is their right of payment only good against the last immediate holder?

2. If this holder is indeed allowed to demand payment from everyone in the chain, must they follow the exact sequence in which the draft/promissory note was passed down the chain? Or can he bypass the last immediate endorser and claim payment from endorser no. 2 or drawer??

3. How many times can one draft be accepted? I have always thought a draft can only be accepted once(by drawee). The point is very confusing for me where it says the current holder can claim against previous endorsers if dishonoured, whether or not the draft has been accepted!

4. Is it possible for a bank to avalize a draft Before or Without acceptance of that draft by the drawee? This makes no sense at all because avalisation is supposed to serve the Additional commitment to pay if the drawee defaulted.

All comments are welcome.

Hi Pal,

I think that all is regulated by Local Law, may be under international Rule of New York or Vienna.

I remember that in Italy the last holder may claim refund from any of the prson in the chain.
In Germany I think that it is possible to endos the bill with "Ohne Obligo" a sort of without recourse.
I think that the acceptance is limited to the drawee, but aval may be added by more guarantors.
But, I repeat, you must follow your law. In case of international bills of exchange I think they will be regulated of the local laws of
the drawee.
Other comments appreciated.
Ciao

My opinion in seriatum is as under:

1. Holder of the draft will present the draft to the acceptor (drawee) to collect the money when due and can sue the acceptor, or anyone else whose signature is on the draft for non-payment. The general rule is that anyone who signs as drawee, acceptor or endorser is legally liable to pay on it.

2. Holder will first demand payment from the acceptor of the draft. In case of non-payment by acceptor, holder can sue the acceptor, or anyone else, who has endorsed the draft. It means there is no need for holder to follow the sequence of endorsement of the draft to sue any of the endorser for non-payment.

3. Draft will be accepted by the drawee only once but can be transferred by endorsement and delivery any number of times. Drawer (payee) and subsequent holders of draft can sell their rights in the draft to a third party, which then becomes the holder. A party negotiating a draft thus acquires a right of recourse in case of dishonour against the party endorsing the draft and to previous endorsers. The acceptor (drawee) is bound by the draft only upon acceptance.

4. No. Bank would do avalisation only when the draft is accepted by the drawee as by doing avalisation bank commits itself unconditionally to pay should the drawee default.

Regards,

Isaac Tudu