PREFACE The letter of credit has been the fundamental method of financing foreign trade for many years. In the half century before 1914, its operation was carefully developed by bankers and merchants. The war and its aftermath of fluctuating exchanges and commodity prices seriously disturbed foreign trade, and the letter of credit became the subject of bitter controversy among the various parties engaged in international commerce. These difficulties were often referred to the courts, but many questions still remain unsettled. The entire subject of foreign commercial credits is at present in a rather uncertain state and comparatively little literature has been written on it. The object of this book is to set forth the practical and legal principles underlying the letter of credit. It should therefore be of interest to bankers, business men and attorneys who are engaged in applying these principles to specific problems. This work should also prove of use in courses on foreign banking and foreign trade, as it deals with a subject which is of general importance but which has not yet been presented in book form. The various aspects of commercial letters of credit are presented with special reference to the tendency toward the standardization of documents and practice in foreign trade. Consideration is given first to the various commercial documents which determine the relations of all the parties to a transaction in international commerce. These relationships have been seriously deranged since 1914 and attention will therefore be given to the new conditions which have arisen out of the war. The innumerable controversies among bankers and merchants have been due in a large degree to misunderstandings as to the meaning, and classification of commercial credits, and their relation to general banking theory. A chapter is devoted to the traveler's letter of credit which is often confused with the commercial letter. The legal theory of the letter of credit, and the cases which have arisen in American courts are analyzed. Attention is also directed to the authority to purchase, which performs the same function as the letter of credit, but differs widely in nature and operation. Finally, British, German, Japanese and Continental methods are studied for the purpose of comparing them with American practices. The appendix includes material illustrating the text. The author has in part drawn material from a series of special articles written by him for the Federal Reserve Bulletin during 1921 and 1922, but the following text contains considerable material which could not well be included in an official publication. These studies were suggested by Dr. H. Parker Willis, Director of the Division of Analysis and Research of the Federal Reserve Board, and were prepared under his direct guidance. Dr. W. H. Steiner, Assistant Director of the Division, read the manuscript and gave many valuable suggestions. An acknowledgment of indebtedness is also due to M. Nadler of the Division, who has been associated with the author in the various studies on commercial credits. NEW YORK, N. Y. June, 1922. GEORGE W. EDWARDS. V. TRAVELERS' LETTERS OF CREDIT VI. THE LETTER OF CREDIT IN AMERICAN LAW-PRINCIPLES UNIV. OF FOREIGN COMMERCIAL CREDITS CHAPTER I THE MOVEMENT TOWARD UNIFORMITY IN COMMERCIAL DOCUMENTS The industry of the United States has developed so rapidly in recent years that domestic demand is insufficient to absorb the enormous production of American-made goods. In consequence, foreign markets in the past have been and in the future must be sought. The depression which in 1920 and 1921 weighed so heavily upon American business was in a large measure caused by a decline in our export and import trade. And no permanent revival of industry is possible without a restoration of the movement of goods to foreign markets. Indeed, with the international situation which the war has brought about, the development of foreign trade among American business men must inevitably be more extensive in the future than ever before. For this reason, the importance of a clear understanding by American merchants of methods of financing foreign trade was never greater than today. This study does not present a survey of the broader principles of foreign trade or even of its financing. It is rather confined to an analysis of the instruments which express the relations among the various parties to transactions in international commerce. In its early history, foreign trade involved only one party, the "merchant-adventurer" who bought a variety of goods abroad, carried them in his own vessel and then sold them. Transactions in foreign trade today include not alone merchants of different countries, but also bankers, underwriters, and shipowners. The relations among these parties and their rights and liabilities are defined in such documents as the commercial invoice, bill of exchange, policy of marine insurance |