drafts drawn in accordance with certain stipulations. The drafts may be drawn against the issuing bank, in which case the agreement is similar to a "negotiation credit," or the drafts may be drawn against the importer. Bank guaranties may, however, extend to only a portion of the amount of the draft.

TRUST RECEIPT

Received from

BANK AND TRUST COMPANY, hereinafter called the

Trust Company (or Entruster), the following goods, documents and instruments:

and in consideration thereof I/we hereby agree to hold said goods, documents and instruments in trust for the Trust Company (or Entruster), and I/we also agree to keep said goods, documents and instruments and proceeds thereof, whether in the form of money or bills receivable separate and capable of identification, and to sell the same for account of the Trust Company (or Entruster), and in case of sale to hand the proceeds to the Trust Company (or Entruster) as and when received to apply specifically against the acceptances of the Trust Company (or Entruster), or its correspondents, on my/our account under the terms of letter of Credit No.. .issued for my/our

account.

the

The Trust Company (or Entruster) or its agents, may at any time cancel this trust and take possession of the said property and/or of the proceeds of such of the same as may have then been sold, wherever the said goods or proceeds may then be found, and thereupon without further notice to or demand upon me/us, the undersigned hereby waiving any requirement of notice of such sale under the Uniform Trust Receipts Law, proceed to sell by public. Auction or by Private Sale at their absolute discretion; and in the event of any suspension, or the institution of proceedings in bankruptcy or for the relief of debtors by or against me/us or failure or assignment for benefit of creditors on my/our part or of the non-fulfillment of any obligation or of the non-payment at maturity of any acceptances, made by me/us under said letter of credit issued by the Trust Company (or Entruster) on my/our account, then all obligations, acceptances, indebtedness and liabilities whatsoever shall thereupon with or without notice, at option of the Trust Company (or Entruster), mature and become payable. In the event of any suspension on the institution of proceedings in bankruptcy or for the relief of debtors by or against me/us or failure or assignment for the benefit of creditors on my/our part, the Trust Company (or Entruster) shall be entitled to a priority over all persons in any proceeds or the value of any proceeds (whether identifiable or not) of the goods and merchandise if said proceeds were received by me/us within ten days prior to the happening of any of the events hereinabove in this sentence set forth or if demand is made by the Trust Company (or Entruster) for prompt account. In case the Trust Company (or Entruster) shall exercise its right of repossession or sale of said goods, or the proceeds thereof, or any portion thereof, it is agreed that I/we shall notwithstanding continue to be liable to the Trust Company (or Entruster) upon any indebtedness due or to become due from me/us to the Trust Company (or Entruster) arising under the letter of credit above referred to, or any other obligation after crediting upon the above described obligation or obligations the net proceeds of such sale. The said goods while in my/our hands shall be fully insured against loss by fire, and the insurance money received for any loss shall be subject to the trust herein contained, in the same manner as the goods themselves. If required by the Trust Company (or Entruster) such insurance shall be taken out in the name of BANK AND TRUST COMPANY, and the insurance policy or certificate shall be

lodged with them.

Dated, New York,

Signed

Figure 15.-Trust receipt.

The bank guaranty has been used chiefly in trade with the smaller countries of Europe. With the spread of exchange control and exchange clearing arrangements, its use is now, apparently, very limited. It would seem that, if the importer's bank is willing to guaran

tee payment of drafts drawn against him, it would be prepared, in most cases, to make its engagement more formal by opening a letter of credit in his behalf.

LETTER OF CREDIT (L/C)

A commercial letter of credit is "a written instrument issued by the buyer's bank, authorizing the seller to draw in accordance with certain terms, and stipulating in legal form that all such bills will be honored." 8 (Appendix G.) "For the seller, then, a commercial credit serves the primary purpose of financing the shipment, and may serve a secondary purpose of safeguarding the credit risk." Commercial credits may be classified as follows:

1. According to methods of transmission

(a) Circular.

(b) Specially advised.

2. According to duration-
(a) Revocable.

(b) Irrevocable.

3. According to obligations

(a) Unconfirmed.

(b) Confirmed.

4. According to method of payment—

(a) Negotiation.

(b) Straight.

(c) Sight.

(d) Acceptance.

5. According to method of reimbursement—

(a) Simple.

(b) Reimbursement.

CIRCULAR LETTER OF CREDIT

The letter of credit issued by the buyer's bank may be addressed to persons in general, and mailed to the beneficiary (the exporter), either by the importer's bank or by the importer himself. Such a letter is known as a "circular letter of credit."

"SPECIALLY ADVISED" LETTER OF CREDIT

If the opening bank transmits the letter of credit to the exporter through its correspondent bank in the latter's country, the letter of credit is termed "specially advised." In that case, payment or negotiation of the exporter's draft thereunder will generally be undertaken by the correspondent (notifying) bank.

REVOCABLE AND IRREVOCABLE LETTERS OF CREDIT

If the opening bank reserves the right to withdraw from the transaction by stating that the credit is "good until canceled" or good until a stipulated date "unless sooner revoked," the credit is known as "revocable." (See fig. 16.) But if the credit contains an express waiver of the right to cancel or revoke the credit prior to a specified date, the credit is regarded as "irrevocable." Once the draft has been negotiated, however, a "revocable" credit becomes "irrevocable." (See figs. 17 and 18.)

8 Wilbert Ward, American Commercial Credits, p. 9. Most of the following discussion of commercial credits is based upon Mr. Ward's text. Idem, p. 36.

CONFIRMED AND UNCONFIRMED LETTERS OF CREDIT

A credit is "unconfirmed" if the notifying bank assumes no obligation, in transmitting to the beneficiary (the exporter) the information that a credit has been opened in his favor by such-and-such a foreign bank on behalf of so-and-so. If, however, the notifying bank agrees to give the beneficiary its own formal assurance that the

Drafts so drawn with documents as specified must be presented afar office not later than

The authority given to us is subject to revocation or modification at any time without notice to you. Each of the provisions of the back hereof, except so far as otherwise expressly stated, is incorporated as part of this advice.

This advice conveys no engagement on our paror on the part of. and is simply. for your guidance in preparing and

nting drafts and documents. Yours ver truly,

Authorized Officer

Authorized Officer

Figure 16.-Revocable letter-of-credit advice.

opening bank's obligation under the credit will be performed, it thereby "confirms" the credit. The formal assurance thus takes the form of a confirmed letter of credit. (See figs. 19 and 20.)

CONFIRMED IRREVOCABLE LETTER OF CREDIT

From the above definitions of "revocable" and "irrevocable" and "unconfirmed" and "confirmed" letters of credit, it is clear that a confirmed irrevocable credit is the most secure of all, for it assures the

A FORWARDERS' bills of lading and BILLS OF Lading for shipMENT BY SAILING VESSELS will not be accepted unless specifically authorized. RAILROAD THROUGH BILLS OF LADING will not be accepted, unless expressly stipulated, except on exportations, via Pacific ports, to the Far East. Bills of Lading stipulating that they have been issued under the terms of and subject to the conditions of a "CHARTER PARTY" will not be accepted unless expressly stipulated in the credit.

B BILLS OF LADING INDICATING TRANSSHIPMENT will be accepted unless direct shipment is specified.

C Bills of Lading shall contain no notations qualifying the acceptance of merchandise in apparent good order and condition.

D

When "OCEAN" bills of lading are sequired, unless otherwise stipulated, we will accept "RECEIVED FOR SHIPMENT" or "ALONGSIDE" of "PORT" or "CUSTODY" Bills of Lading. "On Board" Bills of Lading will not be demanded, unless expressly required even though the credit mentions the name of a steamer.

E The date of the Bill of Lading in each case will be taken to be the date of shipment. When "ON BOARI)" shipment is required and such shipment is represented by an "On Board" Bill of Lading, the Bill of Lading date will be taken as the date when such shipment was effected; if evidenced by "On Board" endorsement, the endorsement date will be so taken.

Unless evidence of actual departure of carrier of merchandise is specifically required "LOADING”, “DISPATCH", "DEPARTURE" shall be interpreted in the same manner as the term 'SHIPMENT".

F Documents for partial shipments may be accepted unless expressly prohibited. Even thought the credit mentions the name of a steamer, a partial shipment or shipments by that steamer may be accepted.

G If shipment in instalments within stated periods is specified, each instalment will be treated as a separate transaction, and if there is a failure to ship in any designated period, shipments of subsequent instalments, made in their respective designated periods, may be drawn against.

H The use of "TO". "UNTIL". "ON", and words of similar import, in indicating expiration, is interpreted to include the date mentioned.

1

Any extension of the date of shipment shall extend for an equal length of time the date for presentation or negotiation of draft and documents. How ever, any extension of a date for presentation or negotiation of draft and documents shall not be considered as extending the date of shipment. When the indicated expiration date for presentation or negotiation falls upon a Sunday or legal holiday, the expiration is extended to the next succeeding business day. (This ruiç, however, does not apply to date of shipment.)

K We reserve the right to refuse to take up documents if, in our opinion, they are not presented within reasonable time after date of shipment. The terms "PROMPT SHIPMENT", "IMMEDIATE SHIPMENT", "SHIPMENT AS SOON AS POSSIBLE", and words of similar import, shall be interpreted, if the credit advice contains no specific conditions to the contrary, as requiring shipment to be effected within 30 days from the date of notification to the beneficiary.

M The term "FIRST HALF"."SECOND HALF", of a month shall be construed as from the 1st to the 15th, and the 16th to the last day of each month inclusive, respectively.

xz

N The terms "BEGINNING". "MIDDLE" or "END" of month, or words of similar import, shall be construed respectively as from the 1st to the 10th, the 11th to the 20th and the 21st to the last day of each month, each inclusive. When a credit bears "good for one month", "good for six months, etc., or a similar time limit and the date from which the term is to run is not specified, the term shall be calculated from the date of notification to the beneficiary. O Our credit advice, if without expressed duration, shall not continue in force longer than six months from its date.

P The terms "APPROXIMATELY". "ABOUT". or words of similar import, shall be construed to permit a variation of not to exceed ten per centum. When the merchandise, by its nature does not allow the delivery of the exact quantity indicated, as, for instance, metal bars, oil in barrels, etc., a leeway of 3% more or less will be allowed, even if the terms of the credit call for a fixed weight or measurement.

Q The term "INSURANCE" shall be construed as eith policy of insurance or underwriters' certificate of insurance. Brokers' Cover Notes will not be accepted unless specifically stipulated.

Definitions of Export Quotations will he those adopte y the National Foreign Trade Council, Chamber of Commerce of the U.S.A.. National Asseciation of Manufag r, Americas nufacturers Export Association, Philadelphia Commercial Museum, American Exporters and Importers' Associa serce of thi te of New York, New York Produce Exchange and New York Merchants' Association, at a conference held York, on December 16, 1919.

tig hamber of a House,

Figure 18.-Irrevocable letter-of-credit advice (reverse of fig. 17).